Federal Circuit Court Rules Against COFC On REA Claims for Increased Cost – Negligent EstimateThe US Court of Appeals for the Federal Circuit (CAFC) ruled against the Court of Federal Claims decision on a Request for Equitable Adjustment Claim (REA) against Agility Defense for increased cost under the provisions of FAR 16.503.

The Appeals from the Claims Court was due to denial of a government fixed price indefinite delivery contract with the Defense Logistics Agency (“DLA”). The Federal Circuit Court reversed and remanded the case.

As a general rule, the Federal Circuit Court of Appeals will review appeals from the US Court of Federal Claims de not for conclusions of law and for clear error with COFS’s finding of fact.

Negligent Estimates

The Federal Circuit Court of Appeals (CAFC) found that a government contractor can recover damages from the agency for increased costs it incurred in performing a contract under a negligent estimate theory.

To prevail, a company must show by preponderant evidence that the government’s estimates were “inadequately or negligently prepared, not in good faith, or grossly or unreasonably inadequate at the time the estimate was made.” Medart, Inc. v. Austin, 967 F.2d 579, 581 (Fed. Cir. 1992).

This was a requirements contract which is governed by FAR 16.503 (types of government contracts). Under this clause, the government contracting agency must provide offerors with a realistic estimate of workload. 48 C.F.R. § 16.503.

FAR 16.503(a)(1) – Types of Government Contracts reads:

For the information of offerors and contractors, the contracting officer shall state a realistic estimated total quantity in the solicitation and resulting contract. This estimate is not a representation to an offeror or contractor that the estimated quantity will be required or ordered, or that conditions affecting requirements will be stable or normal. The contracting officer may obtain the estimate from records of previous requirements and consumption, or by other means, and should base the estimate on the most current information available. Failure to take these steps can led your company to possible victory for increased costs. See information about Cost Reimbursement Contracts.

The Court of Federal Claims denied Agility’s claim of a negligent estimate. The COFC found that, “[r]ather than carelessly form[] estimates by asking DRMOs to guess their upcoming needs, DRMS provided objective, historical workload data from which the offerors could extrapolate future needs.”

A common response from the contracting agencies in these types of government contract is usually that bidders  should be aware of volume variations and that it reasonably provided historical data. Also that the offeror takes the risk when it submits its bid.

In this case, the Court of Federal Claims relied on the Medart case , where the US Federal Circuit Court of Appeals relied on FAR 16.503 because the contractor sought reimbursement where the government’s estimated needs varied significantly from those actually required.  In that case the Federal Circuit Court held that the federal government did not negligently estimate its needs when it provided the contractor with historical data from the prior year.

Information that changes the outcome: Going against the Court of Federal Claims, the US Court of Appeals for the Federal Circuit found some unique information that established the legal basis for the government’s negligent estimate, that turned the case in favor of the appellant.  Here, DRMS not only provided historical but it also estimated it future requirements via a solicitation amendment.

The next mistake made by the COFC was that if failed to see that DRM’s historical data was not  “the most current information available ” as required by FAR 16.503(a)(1).

Realistic Estimates Versus Historical Workload Data

The Federal Circuit Court also found that an agency cannot just simply state that  it “provided objective, historical workload data.” Instead, the inquiry goes further to see whether the contracting agency provided a realistic estimate.

Tip: Although the government can provide historical data, the Federal Circuit Court decided that simply providing historical data is reasonable per se.

Tip: To prevail, contractors should present evidence that “the most current information available” to the government was something other than its historical requirements. This invokes the requirements of AR 16.503(a)(1).

Tip: You cannot ask the government to dig up more information than it already has. This will create a losing case. Instead, the government has to use information that is reasonably available at the time.

If the government has in its possession additional information regarding its anticipated needs under a requirements contract then it should provide that information to offerors or face litigation for with allegations of a negligent estimate.

A good point for companies bidding on requirements contracts is to utilize question and answer sessions to probe the government for more information. The agency must perform some level of procurement planning and reasonable government estimates to present to bidders.

Inadequate or Negligent Estimates

The US Federal Circuit Court of Appeals (CAFC) also ruled against the Court of Federal Claims’ conclusion that the contracting agency did not provide a negligent or inadequate estimate.

The lesson here is that the Court of Federal Claims also has to support its factual findings based on the record. In turn, the government also has to support its arguments by pointing to the record.

A good practice seen here is that when bidding on requirements contracts, offerors should expressly include the fact that they are relying on the estimates provided by the agency for staffing and revenue estimations. This is an important point noticed by the Federal Appeals Court.

Negligent Estimates? FAR 16.503 Requires a Realistic Estimate

The US Court of Appeals for the Federal Circuit decided this contractor appeal on the expressed requirements of FAR 16.503. The procurement regulation suggests that government contracting agencies are required to provide bidders with a realistic estimate in a requirements contract.

The Court further found that it saw “no reason why DRMS’s negligence in providing an adequate estimate during solicitation should be excused by its inclusion of a provision directed to workload changes upon performance.”

This appellate case for REA claims relied, as the appeals court found, was rooted in DRMS’s violation of FAR 16.503. According to the appeals court, this problem led to a “large disparity between pre-contract estimates and actual workloads during the performance period.”

The government’s counterargument:  contracting agencies usual insert a contract clause that is used as a disclaimer to show that “..sufficiently large changes in workload levels  might occur between earlier and later times entirely within the performance period.”  This court seems to think that this was not enough for the government to win on appeal.

When litigation contract changes based on negligent estimates or submitting requests for equitable adjustment claims on requirements contracts, be mindful that although the government has a lot of discretion, there is a fine line when it comes to providing companies with realistic estimates.

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