Dg21, LLC v. Mabus , 819 F.3d 1358 ( 2016 )

United States Court of Appeals
for the Federal Circuit
______________________
DG21, LLC,
Appellant
v.
RAYMOND E. MABUS,
SECRETARY OF THE NAVY,
Appellee
______________________
2015-1830
______________________
Appeal from the Armed Services Board of Contract
Appeals in No. 57980, Administrative Judge John J.
Thrasher.
______________________
Decided: May 6, 2016
______________________
JOHN C. DULSKE, Law Offices of Dulske & Gluys, P.C.,
San Antonio, TX, argued for appellant. Also represented
by JOAN KELLEY FOWLER GLUYS.
DOMENIQUE GRACE KIRCHNER, Commercial Litigation
Branch, Civil Division, United States Department of
Justice, Washington, DC, argued for appellee. Also repre-
sented by BENJAMIN C. MIZER, ROBERT E. KIRSCHMAN, JR.,
MARTIN F. HOCKEY, JR.; RUSSELL SHULTIS, Office of Liti-
gation, United States Navy, Washington, DC.
______________________
2 DG21, LLC v. MABUS
Before PROST, Chief Judge, NEWMAN and LOURIE, Circuit
Judges.
LOURIE, Circuit Judge.
DG21, LLC (“DG21”) appeals from the decision of the
Armed Services Board of Contract Appeals (the “Board”)
denying an appeal from the final decision of the contract-
ing officer (“CO”) denying DG21 an equitable adjustment
to account for escalated fuel costs under a government
contract. See DG21, LLC, ASBCA No. 57980, 15-1 BCA
¶ 36016 (Mar. 3, 2015); see also Joint App. (“J.A.”) 1–26.
For the following reasons, we affirm.
BACKGROUND
The Department of the Navy (“the Navy”) maintains a
support facility at Diego Garcia, a small atoll in the
Indian Ocean. J.A. 36–37. The atoll occupies approxi-
mately 10.5 square miles in area, and is located approxi-
mately 1,800 miles east of the coast of Africa and 1,200
miles south of the southern tip of India. J.A. 36. Access to
Diego Garcia is restricted to military personnel, author-
ized government personnel, and contractors of the United
States or United Kingdom, and there is no commercial or
civilian infrastructure. J.A. 38.
In September 2005, the Navy issued a solicitation for
bids on a firm fixed-price contract to provide base operat-
ing support services at Diego Garcia. J.A. 39. The ser-
vices to be performed by the contractor varied widely,
from information technology services to refuse collection
and recycling. J.A. 39. In addition to providing the
services themselves, the contractor was required to im-
plement a fuel conservation initiative, with a goal of
cumulatively reducing fuel use by 10% per year of the
contract. J.A. 48–49. Success in the fuel conservation
initiative was responsible for 10% of the contractor’s
award-fee pool each year. J.A. 50.
DG21, LLC v. MABUS 3
The solicitation identified two categories of fuel used
under the contract. J.A. 115, 116. The first category,
“government-furnished fuel,” was provided by the Navy to
the contractor without any payment required, and could
be used for most of the services in the contract. J.A. 115.
The second category, which applied to all contractor base
support vehicles and equipment (“BSVE”) and labelled as
“contractor-furnished fuel,” was in fact also provided by
the Navy. Rather than being provided without payment,
however, the solicitation required the contractor to reim-
burse the Navy for that fuel “at the prevailing DoD [De-
partment of Defense] rate at the time of purchase.” J.A.
116. The solicitation indicated that the reimbursement
program was “to ensure that the fuel conservation pro-
gram achieves its full impact throughout the life of the
contract.” J.A. 115. The solicitation also provided histori-
cal fuel prices and usage rates for contractors to use in
crafting their bids. J.A. 116.
The solicitation incorporated by reference several
provisions of the Federal Acquisition Regulations (“FAR”).
J.A. 136. One incorporated provision provides that:
(a) The Contracting Officer may, at any time . . .
by written order designated or indicated to be a
change order, make changes in the work within
the general scope of the contract, including chang-
es–
...
(3) In the Government-furnished facilities,
equipment, materials, services, or site[.]
...
(b) Any other written or oral order . . . from the
Contracting Officer that causes a change shall be
treated as a change order under this clause; pro-
vided, that the Contractor gives the Contracting
Officer written notice stating (1) the date, circum-
4 DG21, LLC v. MABUS
stances, and source of the order and (2) that the
Contractor regards the order as a change order.
...
(d) If any change under this clause causes an in-
crease or decrease in the Contractor’s cost of . . .
performance of any part of the work under this
contract, whether or not changed by any such or-
der, the Contracting Officer shall make an equita-
ble adjustment and modify the contract in writing.
48 C.F.R. § 52.243-4 (1987).
DG21 submitted a bid on the solicitation, and per-
formed calculations to determine how much contractor-
furnished fuel it expected to consume. J.A. 57–58. It
arrived at “a significantly lower number of gallons than
the total gallons” reflected in the solicitation, and so its
fuel estimate was significantly less than the Navy’s. J.A.
58. DG21 also indicated that if fuel rates varied from
historical rates by 10% or more, it would request an
equitable adjustment, but that it would not escalate the
amount of costs over the life of the contract. J.A. 232.
The Navy responded that “[t]he historical fuel con-
sumption and rates” were “provided for informational
purposes only.” J.A. 234. The Navy also clarified that as
the solicitation was firm fixed-price, “DG21 assumes the
full risk of consumption and/or rate changes. Please price
your proposal accordingly. Please review and cor-
rect/adjust as appropriate.” J.A. 234. The Navy also
questioned DG21’s decision not to include an escalation
clause, and accordingly requested clarification and con-
firmation of DG21’s intentions regarding its rates. J.A.
233–34. DG21 did not change its estimate of fuel costs,
reasoning that although fuel prices “fluctuate dramatical-
ly from year-to-year . . . [it] believes that fuel costs overall
should decrease through the Energy Efficiency Program.”
J.A. 235. Accordingly, DG21 took the position that fuel
DG21, LLC v. MABUS 5
costs did not need to be escalated and therefore did not
change its pricing. J.A. 235. DG21 also removed the
provision from its proposal indicating that it would seek
an equitable adjustment if fuel prices changed more than
10%. See J.A. 236–38. DG21’s final proposal was accept-
ed, and DG21 was awarded the fixed-price contract on
July 6, 2006. J.A. 239, 241. The total estimated price for
the contract was $455,292,490. J.A. 241.
During the course of the contract, fuel prices—and
thus the prevailing DoD rate for fuel—rose dramatically,
reaching a maximum of more than double the historical
rate indicated in the solicitation. See J.A. 106–07. At one
point, DG21 sought to cap the price for fuel at a 10%
change from historical rates, despite having removed that
language from its final proposal. J.A. 287–88. The Navy
did not accept that request, and DG21 dutifully reim-
bursed the Navy for all “contractor-provided” fuel that it
consumed. J.A. 122–23.
On July 8, 2011, DG21 requested an equitable ad-
justment to account for the unexpected increase in fuel
costs. J.A. 100–02. DG21 calculated the weighted aver-
age of prices before contract performance began as $1.75
per gallon, and calculated the requested adjustment by
subtracting the amount it would have paid at $1.75 per
gallon from the amount actually paid. J.A. 106–07. DG21
reasoned that because the government determined the
prevailing DoD rate and invoiced DG21 for fuel, the
change in fuel price was a “change” to the contract under
FAR § 52.243-4. Accordingly, DG21 requested an equita-
ble increase of $1,171,475.90. J.A. 100–02.
The CO denied DG21’s request. The CO stated that
the historical rates had been provided for informational
purposes only and that the price fluctuations were not
changes to the contract under FAR § 52.243-4. J.A. 131–
32. DG21 appealed the CO’s denial to the Board.
6 DG21, LLC v. MABUS
After exhaustively reviewing the record, the Board
denied DG21’s appeal. The Board reasoned that even if
FAR § 52.243-4 applied to the contractor-furnished fuel,
fluctuations in the prevailing DoD rate of fuel would not
constitute a change under the changes clause. J.A. 22.
The Board found that the contract language anticipated
fluctuations in the market, and that the FAR did not
reallocate the risk of changes to the Navy. J.A. 22–23.
Moreover, the Board found that DG21’s proposed inter-
pretation would undermine the purpose of the contract—
to conserve fuel. J.A. 23. The Board reasoned that if
DG21 did not bear the risk of market fluctuations, it
would have little incentive to conserve fuel or establish a
fuel conservation program. J.A. 23. Finally, the Board
also rejected DG21’s argument that the Navy construc-
tively changed the contract by charging more than the
fuel price listed in the solicitation because the plain
language of the contract contemplated market fluctua-
tions in the fuel price. J.A. 24.
DG21 timely appealed. We have jurisdiction pursu-
ant to 28 U.S.C. § 1295(a)(10).
DISCUSSION
We review the Board’s conclusions of law, including
its interpretation of a contract, de novo. Gen. Dynamics
Corp. v. Panetta, 714 F.3d 1375, 1378 (Fed. Cir. 2013).
Still, we give the Board’s determination “careful consider-
ation due to the [B]oard’s considerable experience in
construing government contracts.” Wickham Contracting
Co. v. Fischer, 12 F.3d 1574, 1577 (Fed. Cir. 1994). We
will affirm the Board’s factual determinations if they are
“based on ‘such relevant evidence as a reasonable mind
might accept as adequate to support a conclusion.’” Gen.
Dynamics Corp., 714 F.3d at 1378 (quoting E.L. Hamm &
Assocs. v. England, 379 F.3d 1334, 1338 (Fed. Cir. 2004)).
DG21’s principal argument is that the Board erred
when it determined that FAR § 52.243-4 did not allocate
DG21, LLC v. MABUS 7
the risk of market fluctuations in fuel prices to the Navy.
DG21 does not contend that the contract is ambiguous,
and specifically admits that “the plain and unambiguous
meaning of DG21’s contract—which includes any properly
incorporated terms—controls the dispute concerning the
risk allocation associated with increases in the prevailing
DoD rate for government-furnished materials.” Appel-
lant’s Br. 12. The Navy responds that the contract allo-
cates the risk of fuel price fluctuations to DG21, that a
change in the price of fuel was not a “change” within the
meaning of the FAR, and that DG21’s interpretation
undercuts the goal of the fuel conservation program.
Appellee’s Br. 16–33.
We agree with the Navy that the Board did not err in
denying the request for an equitable adjustment for
increased fuel costs. The contract specifically states that
DG21 would purchase fuel “at the prevailing DoD rate at
the time of purchase.” J.A. 116. DG21 was only charged
that prevailing DoD rate for fuel, and does not contend
otherwise. DG21 also does not allege that DoD inflated
the prevailing rate in an effort to force DG21 to pay for
programs not covered by the contract. See Raytheon
Missile Sys., Co., ASBCA No. 57594, 13-1 BCA ¶ 35,264.
Because the contract indicates that DG21 would be
charged the prevailing DoD rate, and DG21 was only
charged the prevailing DoD rate, there was no change to
the contract that would trigger FAR § 52.243-4.
DG21’s arguments do not convince us otherwise. The
contract uses the phrase “prevailing DoD rate at the time
of purchase” to describe the price that DG21 would pay
for fuel, rather than stating a specific price that DG21
would pay. J.A. 116. By referencing the “prevailing DoD
rate at the time of purchase,” rather than a specific price,
the contract conveyed that the price for fuel could vary as
the prevailing DoD rate varied; the contract conveys that
the price will vary depending on the “time of purchase.”
J.A. 115–16. Accordingly, a variable fuel price was a
8 DG21, LLC v. MABUS
specific part of the contract. Indeed, the lack of a specific
price that DG21 would be charged for fuel reveals a
problem with the manner in which DG21 calculated the
equitable adjustment that it seeks. Because the contract
does not indicate a specific dollar amount that DG21 will
be charged per gallon, DG21 instead grounds its request-
ed adjustment in a price cap that it proposed based on
historical data that the Navy provided “[f]or informational
purposes only,” J.A. 116, but did not ever agree to, see J.A.
287–88. If we were to hold the Navy to prices that it
provided to prospective bidders for merely informational
purposes, the Navy would have little incentive to include
such prices in future solicitations.
Consistent with the general rule that “[t]he essence of
a firm fixed-price contract is that the contractor, not the
government, assumes the risk of unexpected costs,”
Lakeshore Eng’g Servs., Inc. v. United States, 748 F.3d
1341, 1347 (Fed. Cir. 2014), the “prevailing DoD rate”
provision also allocates the risk of fluctuating fuel prices
to DG21. If DG21 wanted to protect itself from rising fuel
prices, it could have bargained for such protections. See
id. at 1348. Instead, during the bid process, DG21 told
the Navy that the Navy had overestimated the cost of fuel
under the contract; the Navy responded that fuel prices
fluctuated and that DG21 was “assum[ing] the full risk of
consumption and/or rate changes,” J.A. 234; and DG21
elected not to adjust its cost projections upward, J.A. 58,
234–35. DG21 itself recognized that “[f]uel prices fluctu-
ate dramatically from year-to-year,” J.A. 235, but did not
include an escalation provision in its bid, and removed
from its final bid the provision indicating that it would
seek an equitable adjustment if fuel prices varied more
than 10%. See J.A. 235–38. Having failed to protect itself
during contract negotiation, despite specifically recogniz-
ing the volatility of fuel prices, DG21 “cannot now rewrite
the clauses to provide it protections the government did
not agree to.” Lakeshore Eng’g, 748 F.3d at 1348. Accord-
DG21, LLC v. MABUS 9
ingly, the increase in fuel prices was not a change to the
contract triggering FAR § 52.243-4; the contract allocated
to DG21 the risk of rising fuel prices.
CONCLUSION
We have considered the remaining arguments, but
find them unpersuasive. For the foregoing reasons, the
decision of the Board is affirmed.
AFFIRMED