Before Plager, Bryson, and Gajarsa, Circuit Judges.
The opinion of the court was delivered by: Bryson, Circuit Judge.
Appealed from: United States Court of Federal Claims
Opinion for the court filed by Circuit Judge BRYSON. Concurring opinion filed by Circuit Judge PLAGER.
The contract at issue in this government contract case contains an option clause. When the government sought to exercise that option, the contractor objected that the attempt was legally ineffective. After the contracting officer rejected the contractor's position and directed it to perform the option, the contractor filed an action in the Court of Federal Claims seeking a declaration that it was not obligated to perform because the government had not validly invoked the option clause. The Court of Federal Claims held that the contractor was required to perform, but at a delivery rate lower than that ordered by the contracting officer. When the contractor refused to perform even at the rate directed by the court, the government terminated the contract for default.
We reject the government's threshold argument that the Court of Federal Claims lacked jurisdiction over the contractor's request for declaratory relief. On the merits, we hold that, although the option clause was not effectively exercised, the disputes clause of the contract required the contractor to perform in accordance with the decision of the Court of Federal Claims pending resolution of the action. Because the performance period required by the trial court's decision has expired, our holding that the contractor has no obligations under the option clause does not affect the contractor's obligations under the disputes clause. We therefore reverse the order of the Court of Federal Claims upholding the validity of the option exercise, but we affirm the court's order that Alliant was contractually obligated to perform the option quantity at a rate of 1550 bombs per month, although we do so based on the disputes clause rather than the option clause.
In October 1995, Global Environmental Solutions, Inc., a division of Alliant Techsystems, Inc., (Alliant) entered into a contract with the United States Army to demilitarize 24,497 bombs. The contract included an "Evaluated Option for Increased Quantity," which allowed the Army to increase the number of bombs to be demilitarized by up to 100 percent of the base number in the contract. The option provision specified the time period during which the option could be exercised, the time at which option performance was to begin, and the monthly rate at which the option quantity was to be delivered. The contract also incorporated by reference the standard "disputes clause," which is set forth at 48 C.F.R. § 52.233-1 and provides as follows:
(a) This contract is subject to the Contract Disputes Act of 1978 as amended (41 U.S.C. 601-613). . . . . .
(i) The contractor shall proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under the contract, and comply with any decision of the Contracting Officer."
During the summer of 1997, the contracting officer advised Alliant that he planned to exercise the evaluated option in full by increasing the number of bombs to be demilitarized by 100 percent. Alliant objected, arguing that the time for exercising the option had expired. Nonetheless, on August 4, 1997, the contracting officer issued a unilateral modification of the contract purporting to exercise the option.
In a letter to the contracting officer dated September 11, 1997, Alliant argued that the contracting officer's attempt to exercise the option was ineffective. Alliant took the position that it was not bound to perform because (1) the attempted exercise of the option was untimely and (2) the contracting officer had specified a delivery rate that was not set forth in the option clause. On September 17, 1997, the contracting officer rejected Alliant's arguments by letter and insisted that Alliant demilitarize the additional bombs at the specified rate. The contracting officer disagreed with Alliant's interpretation of the delivery rate and the time period for exercising the option. Pursuant to the contracting officer's schedule, the first delivery of demilitarized bombs under the option clause was due on October 31, 1997.
On the day of the contracting officer's letter, Alliant filed a complaint in the Court of Federal Claims seeking a declaration that it was not required to perform the option. Alliant also sought an injunction barring the government from enforcing the option clause or from terminating the contract for default for failure to perform the option. The trial court ruled that it did not have jurisdiction to enter an injunction, but that it had jurisdiction to issue a declaratory judgment. On October 31, 1997, the court addressed the merits of Alliant's request for declaratory relief.
In its order, the Court of Federal Claims declared that Alliant was required to perform the option, but at a rate lower than that ordered by the contracting officer. Alliant has appealed from the aspect of the court's order holding that the option was effectively exercised. The government has appealed from the court's ruling that it had jurisdiction to grant declaratory relief and that the delivery rate specified by the contracting officer was too high.
The Tucker Act defines the jurisdiction of the Court of Federal Claims with respect to disputes arising under the Contract Disputes Act (CDA) as follows:
"The Court of Federal Claims shall have jurisdiction to render judgment upon any claim by or against, or dispute with, a contractor arising under section 10(a)(1) of the Contract Disputes Act of 1978, including a dispute concerning termination of a contract, rights in tangible or intangible property, compliance with cost accounting standards, and other non-monetary disputes on which a decision of the contracting officer has been issued under section 6 of that Act." 28 U.S.C. § 1491(a)(2).
The parties agree that the CDA grants jurisdiction to the Court of Federal Claims and the agency boards over a contractor's request for relief only when the appeal or action is based on a qualifying claim filed by the contractor and a final decision by the contracting officer. See generally Reflectone, Inc. v. Dalton, 60 F.3d 1572 (Fed. Cir. 1995) (in banc). In the portion of its brief directed to jurisdiction, the government argues that the Court of Federal Claims lacked jurisdiction over the complaint in this case because the complaint was not preceded by either a qualifying claim by Alliant or a final decision by the contracting officer. Alliant responds that the correspondence between the parties is properly characterized as constituting a claim and a final decision.
Alliant's September 11, 1997, letter to the contracting officer set out Alliant's position that the attempt to exercise the option was ineffective, and it advised the contracting officer that "if you disagree with our position, please consider this letter a claim and request for a final decision under the CDA." The Federal Acquisition Regulation defines a "claim" as
"a written demand or written assertion by one of the contracting parties seeking, as a matter of right, the payment of money in a sum certain, the adjustment or interpretation of contract terms, or other relief arising from or relating to the contract . . . ." 48 C.F.R. § 33.201.
The government does not dispute that the September 11 letter was a written demand seeking adjustment or interpretation of a contract term, i.e., the evaluated option provision. Instead, the government argues that the demand did not constitute a "claim" because Alliant was not seeking relief "as a matter of right." The "as a matter of right" requirement of the definition of "claim" was not satisfied, according to the government, because the disputes clause in the contract required Alliant "to comply with the contracting officer's directive first and litigate about the directive's propriety later." We reject that argument for several reasons.
First, the phrase "as a matter of right" in the regulatory definition of a "claim" requires only that the contractor specifically assert entitlement to the relief sought. That is, the claim must be a demand for something due or believed to be due rather than, for example, a cost proposal for work the government later decides it would like performed. See Reflectone, 60 F.3d at 1576; Essex Electro Eng'rs, Inc. v. United States, 960 F.2d 1576, 1580-81 (Fed. Cir. 1992). Alliant's letter asserted specific contractual and legal grounds for its interpretation of the option and by doing so met that requirement.
Second, the government's interpretation of the "as of right" language would require the court to determine an important question going to the merits of the case - whether the option clause obligations were subject to the ongoing performance obligation of the disputes clause - before deciding the issue of jurisdiction. That approach reverses the proper sequence of determining jurisdiction before reaching the merits; in fact, it boils down to finding that the court has jurisdiction only after determining that the claimant should win.
Third, the government's argument that the disputes clause barred Alliant from filing a claim seeking an interpretation of the option clause until after it had completed performance of the option does not find support either in the language of the contract's disputes clause or in the statute that generally authorizes the use of disputes clauses in government contracts.
Section 6(b) of the CDA, 41 U.S.C. § 605(b), provides that nothing in the Act "shall prohibit executive agencies from including a clause in government contracts requiring that pending final decision of an appeal, action, or final settlement, a contractor shall proceed diligently with performance of the contract in accordance with the contracting officer's decision." The standard disputes clause, which was incorporated by reference in the Alliant contract, largely tracks the statutory language and provides that "pending final resolution of any request for relief, claim, appeal, or action arising under the contract," the contractor must "proceed diligently with the performance of this contract" and "comply with any decision of the contracting officer." 48 C.F.R. § 52.233-1. By referring to the requirement that performance be continued "pending" a final resolution of the contractor's rights, the statute and the disputes clause contemplate that, while performance is ongoing, the contractor may seek a final resolution of its rights by an appeal to an agency board of contract appeals or an action in the Court of Federal Claims.
The legislative history of the CDA is not at odds with this interpretation. The Senate Report on the Act makes clear that one reason for giving contractors "unique" appeal rights from adverse decisions by contracting officers is that contractors are obligated under the disputes clause to continue work "without stopping to litigate." S. Rep. No. 95-1118, at 32, reprinted in 1978 U.S.C.C.A.N. 5235, 5266. The Senate Report makes clear that the disputes clause prohibits a contractor from stopping work pending litigation, and it further indicates that in the normal course contractors will be expected to perform as directed and to seek an equitable adjustment to recover the cost of the additional work if that work was not required by the contract. See id. ("Government contractors must perform and then argue about the amount of the equitable adjustment at some later time."). But it reads too much into the Senate Report to conclude that the disputes ...