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Bob posted a link to RocJoi Medical Imaging, LLC, CBCA 6885, 7051, July 23, 2021 on the home page. In that decision, the Board stated the following:

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Task orders issued under indefinite quantity contracts “represent the government’s exercise of existing contract rights and are not separate, individual contracts.” HMRTech2, LLC, ASBCA 56829, 10-1 BCA ¶ 34,397; see Coastal States Petroleum Co., ASBCA 31059, 88-1 BCA ¶ 20,468; see also Walker Development & Trading Group Inc. v. Department of Veterans Affairs, CBCA 5907, 19-1 BCA ¶ 37,376 (defaults on delivery orders justified termination of the contract as a whole).

So far so good. However, in a footnote to this statement the Board stated:

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By contrast, “[t]he placement of an order” under a Federal Supply Schedule (FSS) contract “creates a new contract; the underlying FSS contract gives the Government the option to buy, but it does not require the Government to make a purchase or expend funds. Further confirming that FSS orders are [new] contracts, the Government is not completely bound by the FSS contract’s terms” and may renegotiate the pricing. Kingdomware Technologies, Inc. v. United States, 136 S. Ct. 1969, 1978 (2016). Suffice it to say these are not features of valid contracts containing the Indefinite Quantity clause. See Coyle’s Pest Control, Inc. v. Cuomo, 154 F.3d 1302, 1304–06 (Fed. Cir. 1998).

Aren't most FSS contracts IDIQ contracts? Don't they guarantee a minimum purchase and contain the Ordering clause (FAR 52.216-18) and the Indefinite Quantity clause (FAR 52.216-22)? 

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According to GSA, https://www.gsaelibrary.gsa.gov/ElibMain/home.dohttp:/www.gsaelibrary. gsa.gov/ElibMain/contractClauses.do?scheduleNumber=MAS&contractNumber=47QTCA19D00KZ&contractorName=AVINT+LLC&duns=079953992&source=ci&view=clauses, the following clause is included in FSS contracts:

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I-FSS-106 GUARANTEED MINIMUM (DEC 2019)

The minimum that the Government agrees to order during the period of this contract is $2,500. If the Contractor receives total orders for less than $2,500 during the term of the contract, the Government will pay the difference between the amount ordered and $2,500. (a) Payment of any amount due under this clause shall be contingent upon the Contractor’s timely submission of GSA Form 72A reports via the FAS Sales Reporting Portal (see GSAR 552.238-80 “Industrial Funding Fee and Sales Reporting”) during the period of the contract and receipt of the close-out sales report pursuant to GSAR 552.238-80. (b) The guaranteed minimum applies only if the contract expires or contract cancellation is initiated by the Government. The guaranteed minimum does not apply if the contract is terminated for cause or if the contract is canceled at the request of the Contractor.

 

 

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Both the Ordering and Indefinite Quantity clauses are on that list, too. I checked the VA FSS solicitations and they state a guaranteed minimum and contain the Ordering and Indefinite Quantity clauses. 

Assuming these terms are contained in FSS contracts generally, it seems the Board didn't understand--

1. FSS contracts do require the Government to make a purchase.

2. FSS contracts are valid contracts containing the Indefinite Quantity clause that permit the Government to negotiate discounted pricing for individual orders.

The footnote was completely unnecessary. The case had nothing to do with FSS orders. It reminded me of the subreddit r/confidentlyincorrect.

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The decision contains two great quotes, though:

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We do not endorse a "naive stance that" either party "had the right to read its contract as an unsophisticated layman might, without bothering to inquire into the established meaning and coverage of phrases and provisions, which appear to be unusual or special to federal procurement." General Builders Supply Co. v. United States, 409 F.2d 246, 250-51 (Ct. Cl. 1969).

There are members of this forum who could benefit from reading that passage.

Here is the full quote from General Builders Supply, in context:

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The Federal Procurement Regulations provided that, on termination of a fixed price contract, ‘(a)nticipatory profits and consequential damages shall not be allowed’ (41 C.F.R. s 1—8.303 (a) (1968)), and said expressly that directives like the one just quoted could be used (in addition to computing the award on a convenience-termination) ‘for guidance in negotiating a settlement agreement, or in making an equitable adjustment’ (41 C.F.R. § 1—8.000(b) (1968) (emphasis added)). Moreover, the meaning of ‘equitable adjustment’ had become, so to speak, a ‘trade usage’ for those engaged in contracting with the Federal Government. The knowledgeable federal contractor would understand it, and plaintiff, if it was not so knowledgeable, was charged with making itself aware of that usage. Cf. Uniform Commercial Code § 1-205 . Since it was dealing with the Government, as to which a whole body of special contract provisions has developed, plaintiff could hardly take the naive stance that it had the right to read its contract as an unsophisticated layman might, without bothering to inquire into the established meaning and coverage of phrases and provisions which appear to be unusual or special to federal procurement. Cf. Beacon Constr. Co. of Mass. v. United States, 314 F.2d 501, 161 Ct. Cl. 1 (1963). In this instance, slight inquiry would have brought forth the information that ‘equitably adjusted’ was a term of art, and anticipatory profits would not be allowed.

BANG!

Another great quote is:

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The agency uses the word "order" in inconsistent ways. We do not encourage that practice, which can foster issues of interpretation.

Another lesson learned.

Terminology is important, people.

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The footnote in the case regarding FSS orders being contracts is interesting.  There are several unique aspects of FSS contracts and ordering that makes one think - ability to negotiate lower prices, use of CTA, adding agency specific clauses to orders as long as they don’t conflict, including subcontractors labor if they fit within the contractors billing rates, and including ODCs if the agency complies with all procurement regulations such as synopsizing and competition requirements if applicable.  
 

Take the example of $10 million system development effort.  Say the contractor does $5 million of the work themselves, has $1 million work done by a sub but billed under the contractors rates, has a $2 million CTA with a hardware company also on FSS Schedule, and includes $2 million of ODCs from commercial sources that the agency added after preparing a JOFOC and synopsized.  Is that an order or a contract?

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Note that in Footnote 8 the board cites the Supreme Court's unanimous decision in Kingdomware Technologies, Inc., v. U.S., 136 S.Ct. 1969 at page 1978 (2016). I think the board may have misunderstood what the Supreme's were saying. Here is what the Supremes said:

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[31 USC] Section 8127(d) applies when the Department “award[s] contracts.” When the Department places an FSS order, that order creates contractual obligations for each party and is a “contract” within the ordinary meaning of that term. See, e.g., Black's Law Dictionary 389 (10th ed. 2014) (“[a]n agreement between two or more parties creating obligations that are enforceable or otherwise recognizable at law”). It also creates a “contract” as defined by federal regulations, namely, a “mutually binding legal relationship obligating the seller to furnish the supplies or services ... and the buyer to pay for them,” including “all types of commitments that obligate the Government to an expenditure of appropriated funds and” (as a general matter) “are in writing.” 48 CFR § 2.101 (2015). An FSS order creates mutually binding obligations: for the contractor, to supply certain goods or services, and for the Government, to pay. The placement of the order creates a new contract; the underlying FSS contract gives the Government the option to buy, but it does not require the Government to make a purchase or expend funds. Further confirming that FSS orders are contracts, the Government is not completely bound by the FSS contract's terms; to the contrary, when placing orders, agencies may sometimes seek different terms than are listed in the FSS. See § 8.405–4 (permitting agencies to negotiate some new terms, such as requesting “a price reduction,” when ordering from the FSS).

If I understand Kingdomware correctly, the government ("Department of Veterans Affairs] argued that 31 USC § 8127(d), enacted in 2006, which requires VA set-asides under a "rule of two," did not apply when the underlying FSS contract was awarded and thus did not apply to orders issued under that FSS contract. The court found that placement of the FSS order created a "new contract" and that the rule of two applied to all such new contracts, even though the law was not in place when the FSS contract was awarded.

The Supremes then muddied the waters with its discussion of "the underlying FSS contract." It's not clear to me that their "new contract" reasoning would not apply to all IDIQ contracts. But the board has interpreted Kingdomware to mean that orders under FSS contracts are different from orders under other IDIQ contracts.

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Well, actually, an FSS contract doesn't require the government to buy anything. They can just pay off a contractor by giving them the minimum dollars. That's true of all IDIQ contracts.

And, in fact, I think the Federal Circuit ruled some years ago that the government can even terminate an IDIQ contract for convenience without paying off the full amount of the minimum.

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7 minutes ago, Vern Edwards said:

Well, actually, an FSS contract doesn't require the government to buy anything. They can just pay off a contractor by giving them the minimum dollars. That's true of all IDIQ contracts.

I don't agree with that. FAR 52.216-22(b) states:

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The Government shall order at least the quantity of supplies or services designated in the Schedule as the "minimum."

What you're describing is a settlement when the Government doesn't meet this contract requirement.

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I can see why the court would say they're not due the full amount.  If the minimum order amount is $10,000 the government is obligated to order $10,000.  If the contract is terminated with no orders the contractor shouldn't be able to stick the $10K in his pocket.  If the government actually issued a $10K order at most he would be able to pocket the profit.  Heck he could loose money on the order.

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  • 5 months later...

You need to have consideration in order to form a contract. If it's an IDIQ contract, then the minimum guarantee is the "consideration." Thus, I agree with Vern that you must pay the minimum guarantee regardless of whether an order was placed (i.e. via a "pay off"), or you would not have the necessary consideration to form a contract.

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On 2/2/2022 at 9:15 AM, Dot Dot Dot said:

You need to have consideration in order to form a contract. If it's an IDIQ contract, then the minimum guarantee is the "consideration." Thus, I agree with Vern that you must pay the minimum guarantee regardless of whether an order was placed (i.e. via a "pay off"), or you would not have the necessary consideration to form a contract.

You don’t necessarily have to pay the minimum guarantee. 

 

On 8/3/2021 at 11:38 AM, Vern Edwards said:

And, in fact, I think the Federal Circuit ruled some years ago that the government can even terminate an IDIQ contract for convenience without paying off the full amount of the minimum.

See, for instance: https://www.linkedin.com/pulse/minimum-order-under-idiq-you-entitled-amount-olga-wall

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