Transmitting Delivers Orders via E-mail vs. U.S. Mail

[Incentivize Me]

(previously and incorrectly posted under the subcontracts forum. just started using this site. oops.)

Anyone seen this decision ? ASBCA No. 54988

Basically, an IDIQ contract was issued in 1998 and the first few delivery orders (DO) were signed and distributed in paper form via U.S. Mail. The Govt. agency then started distributing its DOs in .pdf via e-mail. The orders are still on the DD Form 1155, signed, etc. Just the distribution of the DOs changed.

The IDIQ contract includes the FAR ordering clause below. Note paragraph ?.

52.216-18 ? Ordering.

Ordering (Oct 1995)

(a) Any supplies and services to be furnished under this contract shall be ordered by issuance of delivery orders or task orders by the individuals or activities designated in the Schedule. Such orders may be issued from __________ through ____________ [insert dates].

( All delivery orders or task orders are subject to the terms and conditions of this contract. In the event of conflict between a delivery order or task order and this contract, the contract shall control.

© If mailed, a delivery order or task order is considered ?issued? when the Government deposits the order in the mail. Orders may be issued orally, by facsimile, or by electronic commerce methods only if authorized in the Schedule.

(End of Clause)

The contract involved did not include language in the Schedule (Sections B through H) stating that e-mail could be the means of issuing an order. The contractor filed a claim stating these orders were not in accordance with the contract and thus sought an equitable adjustment, because the contractor was losing money. ASBCA ruled in the contractor's favor.

I see how the contractor is technically right but fail to see how the contractor was damaged by the Govt. transmitting the executed order via e-mail vice U.S. mail. If anything, the contractor receives the order faster and can start work sooner.

Would like to hear folks' thoughts on this ?

[Guest Vern Edwards]

First, thanks for bringing to our attention a terrific case, General Dynamics C4 Systems, Inc., ASBCA No. 59488, 2009 WL 1464387, May 8, 2009. Here is a link: http://docs.law.gwu.edu/asbca/decision/pdf2009/54988.pdf

In answer to your question about damages: The board resolved the dispute by finding the contractor entitled to an equitable adjustment for a constructive change, handling it as an invalid exercise of an option. See Nash and Feldman, Government Contract Changes, 3d ed. (2007) ? 11:34. The government required the contractor to do work that it was not obligated to do. The contractor is thus entitled to the reasonable cost of the added work plus a reasonable profit. A DCAA audit mainly validated the contractor's claimed cost. Essentially, a CO's negligence turned a firm-fixed-price contract into a cost-plus-fixed-fee contract.

This case is fascinating because the outcome was due entirely to poor contracting officership, not some screw up by technical personnel. The CO, whom the board names by name, violated the terms of the contract by issuing deliver orders via email when it was not authorized by the contract. The contractor objected to the disputed orders before it performed. The CO insisted that the contractor perform. End of story. A CO's failure to read and to comply with the terms of a contract is going to cost the taxpayer nearly $40 million. $40 MILLION! Man, that hurts. Of course, no one is to blame.

[Incentivize Me]

Yes, I saw the answer to my question when I read the decision before my posting.

I guess I was a little too open-ended in my posting. I do find it interesting though how the ASBCA equates the issuance of an order within a valid ordering period to be treated the same as an option exercise matter. Interesting to note that the contractor only objected AFTER the ordering period expired and ONLY to the orders issued in the last week of the ordering period since the contract prices had become unfavorable to the contractor's current business (revenue/profit) situation. Meanwhile, the contractor had been performing and completing earlier orders transmitted by e-mail. Not (necessarily?) a legal/contractual matter but an illuminating one, none the less.

Regardless, let's do a little thought experiment....

Let's say the contracting officer (CO) noticed the discrepancy between the FAR ordering clause and the Govt.-Contractor business rhythm well before the ordering period expired (i.e. DURING the ordering period).

The contractor had been performing and completing, and the Govt. accepting, otherwise IAW with the contract and those orders that were transmitted by e-mail.

The CO addresses the matter but issuing a unilateral contract modification to the basic IDIQ, citing FAR 43.103((1) and treating this as an administrative change [FAR 43.101 Definitions. ?Administrative change? means a unilateral (see 43.103() contract change, in writing, that does not affect the substantive rights of the parties (e.g., a change in the paying office or the appropriation data).].

One might think the contractor would have a difficult time arguing one of its "substantive rights" had been violated by this unilateral, administrative change contract modification issued during the ordering period. The "substantive right" being to receive an order in paper from the slower mail service vice the faster, e-file that can be immediately further forwared by the contractor to all its pertinent workers and its subcontractors ?

(By the way, adminstrative changes often retroactive impact, not by means of an earlier effective date, on the contract modification but simply by the time of the contract modification. For example, correcting an error in a line of accounting or updating an company's address change.)

Welcome your thoughts on this "thought" experiment.

(By the way, this is a precendent-setting case. It will be interesting to see if the Navy appeals. Regardless, maybe this will spur the FAR council to update the 14-year-old 1995 version of the ordering clause to include any means of transmission to the contractor's designated contracts manager. This could have been done long ago and such a single change then could have saved the Govt. $38M. Yes, the COs should be putting in the Schedule the necessary language. I'm curious to see how many agency FAR supplements have addressed this issue in agency-specific clauses. Will do that research later and get back to you.)

[Guest Vern Edwards]

Before you run any thought experiments, you need to re-read the decision, because you have got it wrong.

I do find it interesting though how the ASBCA equates the issuance of an order within a valid ordering period to be treated the same as an option exercise matter.

The ASBCA did no such thing. The ASBCA found that the government did not issue a proper order within the ordering period, but demanded that the contractor comply with improperly-issued and therefore invalid orders. The orders were invalid because they were sent by email, which was not authorized by the contract. No valid order was sent to the contractor within the ordering period for the work at issue. The ASBCA explained that it was adhering to a precedent of the old Court of Claims (predecessor to the Federal Circuit) in which the court, citing Williston, Corbin, McBride and Wachtel, the ASBCA, and the Armed Services Procurement regulation, held that the authority to issue orders against IDIQ contracts after the minimum quantity has been ordered is an option. Thus, pursuant to long-established case law, orders must be issued in strict accord with the contract option provision, which in this case was the ordering clause. See Dynamics Corp. of America v. United States, 389 F.2d 424 (Ct. Cl. 1968). There is nothing new or radical about the ASBCA'a ruling. Finally, the board dealt at length with the issue of the rationale, timing, and validity of the contractor's objections to the orders at issue and rejected the government's innuendos and arguments in that regard.

The court also addressed the question of whether the email issue was a "merely technical":

We recognize that the ordering term violation could be viewed as merely technical, be we believe that established option law controls the result in this appeal. When the government fails to exercise an option in strict compliance with the contract's terms, but requires the contractor to perform, the government has effected a constructive contract change entitling the contractor to an equitable adjustment. Chemical Technology, Inc., ASBCA No. 21863, 80-2 BCA ? 14,728 at 72,641.

The ordering clause is very clear:

Orders may be issued orally, by facsimile, or by electronic commerce methods only if authorized in the Schedule.

Emphasis added. See the definition of electronic commerce in FAR 2.101. It includes "electronic mail."

I don't know why you think this is a precedent-setting case. The case appears to me to be well in line with prior cardinal/constructive change/waiver/estoppel rulings. What new precedent do you think it sets?

What is interesting is that the government got nailed because its contracting officer failed to comply with its own clause. As the judge points out, contracting officers must read their contracts. There may be consequences if they don't. In this case there was a $40 million consequence.

As for your thought experiment: we just read that the ASBCA considers the right to receive orders delivered by snail mail sufficiently substantive to uphold a contractor's $40 million claim. Your contracting officer wants to unilaterally change the method of exercising an option (issuing an order). I don't think he/she can do that by administrative change. I think he/she needs the contractor's consent to the change and that any orders issued pursuant to the administrative change would be invalid.

[Incentivize Me]

I am aware of all the specifics of the decision and did thoroughly read the 1968 decision with Dynamics Corp.

I still believe this is a case of first impression given there does not appear to be a prior decision specifically addressing the use of e-mail as the means of transmission and the use of e-mail alone as the sole fact invalidating the contract action transmitted by the very same e-mail message. The ABSCA cites several related cases dealing with options, orders, and ordering periods, but none address the e-mail transmission method which is the basis of GDC4S's case.

We have an outdated FAR ordering clause (1995). Since that time, many FAR & DFARS clauses have been revised or added to include various aspects of e-commerce, including CCR, submission of invoices, & receipt of payments to name just a few. Why this one has yet to be updated, I do not know.

E-commerce is the overwhelmingly prevalent means for Govt.-Industry contracting, including but not limited to: contractors to receive solicititations, submit legal binding proposals, receive contract awards, receive contract modifications, submit invoices, receive payment, and receive letters from as well as transmit letters to CORs & PCOs. [it appears GDC4S receives the contract modifications and PCO letters via e-mail and is not disputing other orders issued (under the same contract) by e-mail for which GDC4S did not lose money.]

Given the common e-commerce practice (in particular e-mail) for contractual actions, apparently issuing orders via e-mail is the "anomaly" not updated in the FAR though commonly practiced. Hence, my "thought experiment" of how parties, boards, & courts may view a proactive "remedy" that really addresses the "situation" as an administrative change given e-commerce (particularly e-mail) has become the standard practice in Govt.-Industry contracting. (The ideal remedy would be a FAR clause update.)

My (very rudimentary) research of agency FAR supplements (i.e. checking all the ones listed on the Hill AFB FAR site) shows only ONE -- the Special Operations Command (SOCOM) -- having a clause that includes e-mail as an authorized means of transmission. GSA has two clauses but they focus on detailed electronic data interchange (EDI) info with no specific mention of e-mail.

While it could be true that each local contracting activity addresses e-mail transmission of orders in their local activity clauses, I would bet it would be far from 100% that actually do. Thus, this case of first impression (if not successfully appealed, if the Navy even tries to appeal) with regards to e-mail transmission of an order could be precedent-setting if only for the proverbial brown pants that many Government contracting officers in many Govt. agencies will soon be wearing when contractors realize numerous (if not the majority) of e-mailed delivery or task orders are invalid.

We have seen replies from Vern (and he likely will reply again). However, I am curious as to the thoughts and reactions of other contracting professionals out there. Anyone ?

[formerfed]

I really don't see a problem. COs need to read and know what their contracts say and mean. The ordering clause is clear. If the CO wants to use electronic means of ordering, they need to say so in the Schedule.

I believe there's a reason what the FAR provision hasn't been changed. Many task and delivery orders have extensive and complicated attachments (drawings, detailed specs, etc.) that make electronic transmission difficult if not impossible. The FAR clause says mail is the means unless the CO decides that oral, fax, or electronic is better.

[Guest Vern Edwards]

This is not a case of first impression and there is no new case law. Use of email was not the issue of law. The board did not make a holding about the use of email. No such holding was required. It was apparent from the face of the clause that email could be used only when authorized in the contract schedule. The clause said so. The government did not seriously challenge that. The only real issue was whether the contractor had waived its right to object to the use of email or was estopped from doing so. The board held (1) that the authority to issue orders against an IDIQ contract is an option, (2) that options must be exercised in strict accordance with the terms of the contract, (3) that the contractor did not waive its rights in that regard and was not estopped by prior conduct from asserting its rights, (4) that since the government did not issue the orders in strict accordance with the terms of the contract the orders were not binding; and (5) that the government's insistence that the contractor perform the orders constituted a constructive change, which entitled the contractor to its costs plus profit. The result would have been the same if the government had issued the orders orally or by facsimile, instead of by email. If the Navy appeals, they will probably do so on the basis of the board's waiver/estoppel holdings, not the use of email per se.

As for the "outdated" clause, your outrage is misplaced. The last sentence in FAR 52.216-18? was added in 1995, by FAC 90-33, specifically to permit the use of electronic commerce methods of issuing orders. It was not permitted by the earlier version of the clause. The clause is not outdated, it merely requires the contracting officer to read it and put an authorization in the Schedule to permit the use of email if that's what he or she wants to do. The contracting officer who awarded the contract did not do so, and the successor contracting officer issued orders by email, apparently without bothering to check, but, in any case, in violation of the terms of the contract. There are issues about the use of email which require some discussion by the parties, which discussion might not happen if use of email was permitted by boilerplate language. The ASBCA discussed those issues in its decision of January 25, 2009 on the parties' cross motions for summary judgement. I have deleted the reference notes from the following quote in order to make it easier to read:

Option V DO Nos. 18-20 and 22-29 are at issue. GDDS did not receive them through the U.S. mail or by hand-delivery prior to the expiration of the Option V ordering period or at any time. They were transmitted to GDDS as electronic portable document format (PDF) attachments to e-mails from the Navy's support contractor. The attachments contain electronic images of the delivery orders, including the contracting officer's signature. They do not contain his digital signature. The PDF “Document Properties” state that they do not employ a “Security Method” that “restricts what can be done to the document,” and that content copying or extraction and filling in of form fields is allowed... The contracting officer never sought the contractor's agreement to modify the contract to authorize the contracting officer to issue oral, facsimile or electronic delivery orders.

The provision in the Ordering clause requiring express authorization for the use of electronic commerce methods in the schedule gives thoughtful parties an opportunity to address and resolve such issues before plunging ahead.

This is a case of poor contracting officership, pure and simple. The two contracting officers failed in at least four ways: first, by not writing the contract schedule to authorize the use of email, if that's what the government wanted to do; second, by not checking the contract to see if it authorized the use of email before issuing orders by email; third, by not discussing the issue with the contractor before issuing any orders by email; and fourth, by not working something out with the contractor in response to its objection to the electronically-transmitted emails.

The use of email is no big deal, and the vast majority of contractors will readily agree to it if contracts need to be modified. Contractors want orders. In any case, if a contractor has begun to perform an emailed order this decision won't let them out of it. Objections must be raised before the contractor accepts the order. If a contractor won't agree to the use of email, the easy solution is to mail the orders.

The FAR councils cannot write clauses that are positively idiot-proof. There are too many idiots.

[Guest Vern Edwards]

There is another interesting aspect to this case. The contract included six options for additional supplies and services. The firm-fixed-prices were lower under each successive option, in the expectation that the contractor would become more efficient as quantities increased. However, the contractor was losing money, so the government renegotiated every option but the last, in each case agreeing to pay higher prices than it would otherwise have been obligated to pay and waiving specification requirements. It did this, apparently, to give the contractor some relief from the losses it was sustaining. So much for the advantages of "firm-fixed" pricing.

Renegotiation of options is contrary to FAR 17.207. See Magnavox Electronic Systems Co., Comp. Gen. Dec. B-231795, 88-2 CPD ? 431:

An option provision in a contract gives to the government, for a specified time, the unilateral right to purchase additional supplies or services from the contractor. Federal Acquisition Regulation (FAR) ? 17.201, 48 C.F.R. ? 17.201 (1987). Because the exercise of an option permits an agency to satisfy current needs for goods or services without going through formal competitive procedures, the FAR provides that before an option can be exercised the agency must be satisfied that a better price or more advantageous offer would not be available in the market. FAR ? 17.207?(3) and (d). The FAR also provides that an agency may exercise an option only if the exercise accords with the terms of the option. FAR ? 17.208(f).

Footnote omitted. See too, Department of the Army-Reconsideration, B-208281.2, July 12, 1983, 83-2 CPD ? 78:

An option is an unaccepted offer to sell upon agreed terms which may be unilaterally accepted by the Government. Varian Associates, Inc., B-208281, February 16, 1983, 83-1 CPD 160; Department of Health and Human Services-Reconsideration, B-198911.3, October 6, 1981, 81-2 CPD 279; 1 Comp. Gen. 752 (1922). As an unaccepted offer based on agreed terms, an option cannot be the subject of further negotiations after award.

The GAO's position has been that if the government is going to renegotiate the terms of an option it must issue a new solicitation or prepare a justification for other than full and open competition. There is no mention of any such justification in the ASBCA's decision, and I would be surprised if the government prepared any such J&As, although I suppose it's possible that they did the right thing. The GAO's case law appears to still be operative, but I'm not certain.

What this case seems to show is the distance between regulatory requirements and operational realities. The government simply got outsmarted in this case.

[Boof]

I agree with the decision especially since the CO was given notice by the contractor of the issue. However, this is another "Gotcha" that makes everyone want to get out of the contracting field. In 11 years I have never thought to make sure we allowed email in schedule of the IDIQ contracts of which I have awarded many. It will on the top of my mind now of course.

[Guest Vern Edwards]

Boof:

At $40 million, it's definitely a gotcha. But it shouldn't make you want to get out of contracting. The challenge to practitioners is to figure out how to avoid such problems. The two COs in this case were confronted by a series of issues that required them to know the terms of their contract, make sound decisions, and to bargain for fair resolutions. They made what turned out to be a number of serious mistakes.

Every field confronts practitioners with serious challenges. Think about doctors. Think about a rifle company commander leading an advance into an enemy-held city. To me, it's the challenges that make a field of endeavor worthwhile. We in contracting are (should be) important because we are supposed to know about these challenges and how to handle them.

This makes me think of Gordon Wade Rule, the legendary Navy civilian contracting officer. He was a well-to-do man who left a lucrative private law practice at a prestigious firm in order to return to the Navy to negotiate large, complex contracts. He was interviewed by The New York Times in March 1973, and the reporter (Brit Hume!) asked why he wanted to do such work when he could make more money in law. Here is what he said:

"You can practice law," he says. "You can have clients. You can make money. But you never get a feeling in your heart of having contributed a goddamned thing. In this job, boy, you really get that feeling. And what's so damned interesting is that there are new questions every day in making these contracts and administering them and spending the taxpayer's money. They are fascinating questions. I love it."

[Jenius]

OK "Incentivize me" (though I would have liked something more clever- "Salwardfee" maybe?)... I'm going to have to agree with Vern on this. As we had previously discussed- whether or not there was actual damage done by the means of transmission appears to be a moot point. The board was focusing on the fact that an order that was issued outside of the terms of the contract becomes an "option"- which brings the strict compliance aspect of option exercises into play. So even though it appears to be a technicality the board is recognizing the unique power that the government holds over a contractor in cases of both option exercises and task/delivery order issuances. Since the board was focusing on the issuance of the order as the legal equivalent of an option the administrative change solution isn't really a solution- since (I don't believe) the government would ever attempt a unilateral change to any of the option clauses changing the terms for issuance of an option. Since an option is a "unilateral" right, changing the original terms and conditions under which they can be exercised "unilaterally" would definitely be construed as affecting a "substantive right" of at least one party. If the board allowed a unilateral change to a unilateral right in one instance then the government would end up trying to cite every possible reason to allow it in other instances. Or alternatively if the board allowed the government to blatantly disregard complying with the contract that it wrote that would be a terrible precedent to set. I agree that not issuing by paper v. e-mail seems like a triviality on the surface but given the government's conduct in this case I think the ruling by the board is rational and sound. I would like to see the Navy appeal it though- to see all the alternative arguments raised. All-in-all a pretty interesting foray into wifcon world for your first contribution though.

[Don Mansfield]

Apparently, the CO didn't read the FAR either. FAR 16.504(a)(4) states:

(4) A solicitation and contract for an indefinite quantity must?

...

(iv) State the procedures that the Government will use in issuing orders, including the ordering media, and, if multiple awards may be made, state the procedures and selection criteria that the Government will use to provide awardees a fair opportunity to be considered for each order (see 16.505((1))

Italics added.

[Don Mansfield]

CAFC reverses ASBCA. See MABUS V. GENERAL DYNAMICS C4 SYSTEMS, INC.