Determining which language applies to a contract dispute is critical to any contractor seeking to recover costs through the claims and appeals process. Recently, through a series of appeals before the Civilian Board of Contract Appeals (CBCA) and the Court of Appeals for the Federal Circuit (Federal Circuit), both forums offered more fulsome guidance on when a contractor’s terms and conditions will apply to a contract despite potentially conflicting with standard federal contract provisions. Below, PilieroMazza summarizes relevant cases and offers key takeaways from these decisions to help contractors avoid or prevail in contract disputes.
Background
In 2008, CSI submitted an offer to the General Services Administration (GSA) for a travel services solutions contract to provide air charter services assisting a wide range of government agencies. As part of its offer, CSI submitted its commercial price list along with its terms and conditions, and GSA accepted CSI’s offer on March 10, 2009. The awarded contract contained a signed Standard Form 1449 listing documents expressly incorporated into the contract by reference, including CSI’s offer which contained a “Pricing” section identifying its terms and conditions as being part of its offer. Notably, within those terms and conditions, CSI had a termination policy which stated:
In addition to any damages, CSI and the Air Carrier shall be entitled to recover any special out-of-pocket expenses actually incurred specifically, directly and solely in connection with the cancelled flights…. If no cancellation charges are set forth on the first page of this Agreement, then a 25% non-refundable cancellation charge will apply for up to 14 days prior to flights, and 100% cancellation charge will apply if less than 14 days prior to flights.
After winning the contract, the Department of Homeland Security (DHS) issued five orders to CSI in 2014 to perform removal missions from five separate domestic airport hubs. However, during performance, the DHS canceled flights with less than 14 days’ notice to CSI, totaling $40,284,548.89 in cancelled flights. As such, CSI filed a certified claim to the contracting officer in order to recover the $40,284,548.89, citing its terms and conditions as support for its claimed costs. The contracting officer denied the claim stating they understood the terms and conditions had been incorporated into the claim by reference, but the contract’s termination for convenience provision superseded the terms and conditions which did not entitle CSI to the $40,284,548.89 in cancelled flights. Upon receiving the contracting officer’s final decision, CSI appealed to the CBCA, naming both the DHS and GSA as respondents. The CBCA, on the other hand, disagreed that the terms and conditions were incorporated by reference and thus found that CSI was not entitled to the $40,284,548.89. CSI then appealed the CBCA’s decision to the Federal Circuit.
Federal Circuit Appeal
On April 14, 2022, the Federal Circuit issued its decision in CSI Aviation, Inc. v. Dep’t of Homeland Sec. rejecting the CBCA’s finding that CSI’s terms and conditions were not incorporated into its contract by reference. Here, the Federal Circuit noted that CSI’s offer was certainly made part of the contract, and that “[t]he Offer plainly identifies the CSI Terms and Conditions . . . in the “Pricing” section of its table of contents.” Thus, the Federal Circuit concluded that a plain reading of the offer and the contract show CSI’s terms and conditions were incorporated by reference and that “[t]he Board unreasonably strained to find ambiguity regarding the identity of the referenced document” to reach its conclusion. Based on the foregoing, the Federal Circuit reversed the CBCA’s finding the terms and conditions were not incorporated into CSI’s contract by reference and remanded the case back to the CBCA to determine whether the contract’s termination for convenience clause conflicts with CSI’s terms and conditions or whether there exists a separate basis to find that CSI’s terms and conditions are inapplicable.
CBCA Remand
On remand, the parties filed cross motions for summary judgment seeking to resolve the case without needing to further develop the relevant facts. While both parties raised several issues, the CBCA determined that most questions required further development before it could make a ruling. However, the CBCA was able to determine that CSI’s terms and conditions entitling it to 100% of the cancellation charges: (1) are part of the contract and (2) did not conflict with the contract’s termination for convenience provision.
First, GSA and DHS argued that CSI’s terms and conditions should be found inapplicable because they contain unenforceable terms and are ambiguous. Specifically, both agencies claimed that aspects of the terms and conditions conflicted with the Contract Disputes Act, the Anti-Deficiency Act, and the Equal Access to Justice Act and that missing pages referenced in the terms and conditions require the CBCA to guess what additional information may be on those pages. CSI responded that the Federal Circuit already stated the terms and conditions were incorporated by reference and therefore the CBCA was bound by that decision. Although the CBCA disagreed with CSI’s position regarding the Federal Circuit’s decision, it nonetheless found the terms and conditions were applicable to the contract. Here, the CBCA reasoned that “[s]ince none of the provisions identified by GSA and DHS go to the heart of the parties’ bargain and current GSA regulation [sic] would sever these provisions, it is not appropriate to toss the entirety of the terms and conditions based upon the presence of these provisions.” Moreover, the CBCA found that without a specific example demonstrating how the missing pages would prevent it from accurately interpreting the contract, there was no reason to deem the terms and conditions ambiguous and therefore inapplicable.
Second, GSA and the DHS argued the termination for convenience provision, which does not entitle CSI to 100% of the cancellation fee, governs the ability to cancel flights and therefore it should take precedence over CSI’s cancellation policy found in its terms and conditions because the two conflict with one another. The CBCA disagreed, citing the rule of contract interpretation which states when specific and general contract terms conflict, the term more related to the specific matter will control over the general term. With this in mind, the CBCA explained CSI’s terms and conditions govern the specific cancellation of flights as opposed to the termination for convenience provisions that more broadly governs the DHS’s ability to terminate all or part of the issued task orders.
Takeaways
While the CBCA did not resolve CSI’s appeal, there are important takeaways gleaned from both the Federal Circuit’s and CBCA’s decisions, including:
- A contractor’s own specific terms and conditions may apply over standard contract provisions. Thus, contractors should pay close attention to where there may be a conflict between their federal contract’s standard provisions and their own terms and conditions to see which more directly relates to the subject matter.
- It is also important to note that even if certain aspects of a contractor’s terms and conditions conflict with the federal contract, that does not render the entirety of the terms and conditions inapplicable. The CBCA noted the inapplicable portions of CSI’s terms and conditions can be severed, allowing its appeal to continue. As such, the CBCA indicated contractors may still have an avenue to bring appeals based on their own terms and conditions even if some of those terms unrelated to the subject appeal must be severed.
- Contractors should also make it clear in their offers whether certain documents are incorporated by reference. As noted above, CSI was clear that its terms and conditions were incorporated by reference which allowed the Federal Circuit to make such a finding in its decision, keeping CSI’s chances of recovering the full $40,284,548.89 alive. However, if CSI was not explicit, there is a chance the Federal Circuit could have agreed with the CBCA leaving CSI only able to recover a fraction of what it was entitled to under the termination for convenience provision.
Attorneys in PilieroMazza’s REAs, Claims, and Appeals Group are well-versed in defending contractor claims in various forums, as well as assisting in the appeals process. For more information, please contact Lauren Brier, Cy Alba, Dozier Gardner, or another member of the Group.
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