DENIED: March 23, 1994 GSBCA 12391-ED RECORDING FOR THE BLIND, INC., Appellant, v. DEPARTMENT OF EDUCATION, Respondent. Robert R. Humphreys, Washington, DC, counsel for Appellant. Frances C. Moran, Office of the General Counsel, Department of Education, Washington, DC, counsel for Respondent. Before Board Judges DANIELS (Chairman), DeGRAFF, and GOODMAN. DANIELS, Board Judge. A Department of Education (Education) contracting officer demanded that Recording for the Blind, Inc. (RFB), repay $17,953 of the more than two million dollars provided by the agency under a contract involving textbooks recorded on audio tapes. The Government's claim is based on an auditor's report which RFB does not contest. Appellant maintains, however, that as a matter of law, it is entitled to all funds established as the maximum possible payment under the contract. We disagree. Findings of Fact 1. On December 17, 1987, Education awarded to RFB a requirements contract for the recording, production, duplication, and distribution of cassettes which contain readings of textbooks and other written materials for students who are visually and print handicapped. Appeal File, Exhibit 1. The contract provided that Education would pay RFB $2.8157 for each cassette ordered; this unit price was to "include all contributory costs of production and operation," but no profit. The contract also established that the agency would not order more than 191,700 cassettes in any one contract year. Total payments under the contract could not exceed $539,539.65 in any one year.[foot #] 1 Id. at 5-6, 13, 15, 1 of Attachment A. The period of performance was December 7, 1987, through September 30, 1988; Education held options to extend the term from October 1, 1988, to September 30, 1989 (option year 1), and again from October 1, 1989, to September 30, 1990 (option year 2). Id. at 7. The contract incorporated by reference Federal Acquisition Regulation clause 52.232-17, "Interest," which prescribes the imposition of interest on amounts that become payable by the contractor to the Government under the contract. Id. at 16, 18; 48 CFR 52.232-17 (1987). 2. The contract constituted Education's acceptance of a proposal submitted by RFB. In its proposal, RFB had stated: The purpose of the contract is to provide blind and print-handicapped students . . . with the . . . taped textbooks they need for classroom instruction. To accomplish this task, [RFB] proposes to [Education] that together RFB and [Education] enter into a Requirements Contract . . . . RFB has held contracts with [Education] (or predecessor offices) since 1975 to achieve this purpose. Appeal File, Exhibit 2 at 1 of Attachment B. The proposal further said, "RFB is aware that, if awarded the contract, it will operate under a requirement[s] contract." Id. at 2 of Attachment B. 3. RFB told Education at the time of contract award that the per cassette price in the contract "is well below the actual cost to RFB." The contractor explained: In computing the cost per book, only the cost of duplicating and circulating copies of the books already in the [RFB Master Tape] Library are included. The costs of preparing the original recording are not included. To simplify the computation, we have also disregarded capital costs, depreciation, public information and development costs as well as a number of other cost items associated with the delivery of the final product to our handicapped borrowers. Were all these costs to be included, we would ----------- FOOTNOTE BEGINS --------- [foot #] 1 Here, as elsewhere, the unit price times the maximum possible number of orders is close to, but is not precisely, the maximum possible payment; $2.8157 times 191,700 equals $539,769.69, not $539,539.65. The differences are of no importance to this appeal. ----------- FOOTNOTE ENDS ----------- estimate the cost per book would be in the neighborhood of $35. Appeal File, Exhibit 2 at 7 of Attachment B. The per cassette price was calculated on the assumption that each book required six cassettes. Id., Exhibit 4. RFB's estimate of a true cost of $35 per book thus amounted to $5.8333 per cassette. 4. Education exercised its two options to extend the term of the contract. Appeal File, Exhibits 5, 12. The unit price for a cassette was amended to $2.8145, effective at the beginning of option year 1, in accordance with RFB's request. Id., Exhibits 4, 5. On March 16, 1989, the maximum annual order limitation was increased to 302,004 cassettes, and the maximum annual payment was increased to $849,991 for each of the two option years. Id., Exhibit 11. 5. On February 13, 1990 -- during option year 2 -- Education asked RFB for a proposal to modify the contract by increasing the maximum order for that year to 449,904 cassettes. Appeal File, Exhibit 13. In response, on April 11, RFB proposed that the unit price for the 147,900 additional cassettes be increased to $6.6785, and the total funds available for the year be increased by $987,750.15. With reference to the higher unit price, RFB stated, "[W]e believe that the 'official' cost per book should accurately reflect the actual cost to RFB." Id., Exhibit 14 at 1. RFB provided documentation in support of the costs claimed. Id. at Exhibits B, C. The contractor maintained that the higher unit price "is calculated in accordance with the Office of Management and Budget's Circular A-122, 'Cost Principles for Nonprofit Organizations'." Id. at 7 of Attachment B. 6. On August 13, 1990, the parties bilaterally amended the contract to increase the maximum number of cassette tapes for option year 2 to 375,882 and the maximum price for the year to $1,342,991. The additional tapes were to be supplied at a unit price of $6.6785. This price, however, was established "subject to verification by OIG [the department's Office of Inspector General] and may be adjusted in accordance with audit findings." The amendment added to the contract by reference Federal Acquisition Regulation clause 52.215-23, "Price Reduction for Defective Cost or Pricing Data -- Modifications." Appeal File, Exhibit 20 at 3. 7. A private accounting firm performed an audit of this contract for presentation to Education's Office of Inspector General. The audit report, which is dated March 10, 1992, shows that RFB billed Education at the rate of $2.8145 per cassette for 191,700 cassettes during the base period, 302,004 cassettes during option year 1, and 301,578 cassettes during option year 2; and at the rate of $6.6785 per cassette for 74,004 cassettes during option year 2. The report questioned $80,468 in costs which were reimbursed in the billings at the $6.6785 per cassette rate. According to the auditor, these costs were associated with a project that was being funded by a National Science Foundation grant and other sources not associated with the instant contract. The auditor also found that RFB was entitled to $62,515 in reimbursements resulting from other factors. The auditor concluded that netting these two amounts, Education was entitled to repayment of $17,953. Appeal File, Exhibit 24 at 7th page. 8. In response to this report, RFB stated that "the recommended adjustment of $17,953 is not disputed. However, RFB takes the position that this adjustment should be offset by allowable costs not reimbursed by the Department of Education." Appeal File, Exhibit 24 at 21st page. What RFB termed "allowable costs" was the cost of 395,082 cassettes allegedly made by RFB during the contract period for which Education did not reimburse RFB. These cassettes were over and above the contract maximums. According to RFB, the costs associated with the cassettes were $1,230,068. Id. at 21st-22d pages. 9. On January 28, 1993, an Education contracting officer issued a final decision reducing the contract price by $17,953. Appeal File, Exhibit 25; see also id., Exhibit 27 (unilateral contract modification demanding repayment of this amount). RFB timely appealed this decision on April 20, 1993. Discussion The parties have fundamentally different perspectives on the matter in dispute. Education perceives that what is at issue is a question of contract interpretation, and that RFB must be made to abide by the provisions and ramifications of a legal instrument it signed. RFB, on the other hand, maintains that "[t]he contract mechanism is merely a vehicle to distribute the funds Congress has appropriated." Affidavit of James C. Rodgers, RFB Vice President, Finance (Aug. 4, 1993), 5. According to appellant, it is entitled by virtue of Congressional action to receive the maximum amount of money authorized by the contract, even though Education is technically correct in adopting an auditor's view that under the contract itself, RFB must repay part of the money it received. Viewed as a contract matter alone, the case is quite simple. The parties agreed to a requirements contract which stated a unit price per cassette, a maximum number of cassettes to be ordered each year, and a maximum possible payment each year. Finding 1. During the final three months of the contract term, the parties agreed that Education might order as many as 73,878 cassettes at a new unit price, and would pay RFB no more than $493,000 for those items. Compare Finding 6 with Finding 4. The price of each of these cassettes was $6.6785 -- subject to adjustment in accordance with audit findings. Finding 6. The price was supposed to reflect RFB's actual costs of production and operation. Finding 1. The audit was important because the unit price proposed by RFB was 137 percent higher than the previous unit price (and fourteen percent higher than RFB's estimate of its actual costs, made three years earlier). See Findings 3, 4. The audit showed that RFB had overcharged Education by including, among the costs on which the price was based, costs which had already been funded under a grant from another Government agency. Finding 7. Thus, if Education were to compensate RFB for those costs, it would be permitting the contractor to double-bill the Government for the costs. The auditor's report concluded that taking into account all errors involved in payments under the contract, RFB owed Education $17,953. Id. This conclusion was mandated by a clause which was added to the contract; the clause states that if the cost data provided by the contractor was not accurate, the contract price "shall be reduced accordingly and the contract shall be modified to reflect the reduction." Finding 6; 48 CFR 52.215-23 (1989); see also id. 15.804-7(b). RFB did not challenge the report's findings or conclusions. Finding 8. Thus, viewing the dispute as a contract matter, RFB has conceded that Education has carried its burden of demonstrating the validity of the Government's claim. RFB is obliged to pay to Education the amount in dispute. RFB insists, however, that the niceties of contract law must give way in this case to the dictates of Congress. According to RFB, the legislature has mandated that Education transfer to RFB all the money specified as maximum contract payments -- no matter how high RFB's per cassette costs actually were or how many cassettes RFB actually produced and distributed. RFB maintains that Education has exceeded its authority in demanding repayment of funds specifically appropriated by Congress for RFB's use and benefit. Appellant points to Appropriations Committee reports as support for its position. For fiscal year 1988, for example, the House Appropriations Committee "recommends that the Department [of Education] increase its present level of support for [RFB] up to $1,200,000." Appeal File, Exhibit 28. For fiscal year 1989, the same committee "expects the Department to increase its present level of support for [RFB] to $1,200,000;" the Senate Appropriations Committee said that "funds are awarded to . . . [RFB]" and that the panel "intends that [RFB] receive a grant of $750,000 from the funds provided;" and the House-Senate conference committee "intends that $850,000 of the amount provided . . . be used for a grant to [RFB]." Id., Exhibit 29. For fiscal year 1990, the Senate committee said that for media and captioning services, "funds are awarded to . . . [RFB]." Id., Exhibit 30. RFB mistakes commentary for statute. As the Comptroller General has explained: It is a general principle of appropriation law that directions in committee reports, floor debates and hearings, or statements in agency budget justifications are not legally binding on an agency unless they are incorporated, either expressly or by reference, in an appropriation act itself or in some other statute. The rule applies [where] the legislative history . . . is an affirmative expression of intent. 64 Comp. Gen. 359, 361 (1985) (citation omitted). An agency's failure to abide by expressions of intent in appropriations committee reports risks only strained relations with the appropriators. Id. at 361-62. The actual appropriations statutes for the period in question do not reference RFB at all. They simply authorize Education to spend sums of money to carry out the Education of the Handicapped Act, under authority of which this contract was entered into.[foot #] 2 Appeal File, Exhibits 35-37. Thus, contrary to RFB's position, Congress has given the firm no special, legal right to public moneys.[foot #] 3 The agency's refusal to permit RFB to keep all contract payments can in no way be considered an impoundment of funds, in violation of the Congressional Budget and Impoundment Control Act of 1974, Pub. L. No. 93-344, 88 Stat. 326, 367 (1974), as suggested by RFB. For purposes of that law, an impoundment is "an action or inaction by an officer or employee of the United States that precludes the obligation or expenditure of budget authority provided by the Congress." 64 Comp. Gen. at 366; see also 2 U.S.C. 682 (1988). As explained, Congress has not provided an obligation or expenditure of budget authority for RFB. In any event, even if it had, RFB could not challenge the impoundment and the Board could not decide whether the agency's action was permissible. The Act authorizes the Comptroller General to bring suit in the United States District Court for the District of Columbia to require that budget authority be made available for obligation, and the courts have held that this authority is exclusive. 2 U.S.C. 687 (1988); Rocky Ford Housing Authority v. United States Department of Agriculture, 427 ----------- FOOTNOTE BEGINS --------- [foot #] 2 The name of the authorizing statute has since been changed to the Individuals with Disabilities Education Act. Pub. L. No. 102-119, 105 Stat. 587, 607 (1991). [foot #] 3 Even if RFB's legal theory that committee report language is controlling were correct, it would not assist appellant in this case. For the year in question, fiscal year 1990, the only committee report to which RFB calls our attention says that an unspecified amount of funds should go to RFB. By providing some money to appellant, Education could not be said to have violated this guidance. ----------- FOOTNOTE ENDS ----------- F. Supp. 118, 134 (D.D.C. 1977); Rogers v. United States, 14 Cl. Ct. 39, 50 (1987), aff'd, 861 F.2d 729 (Fed. Cir. 1988) (table). We also reject RFB's thesis that "[b]y requiring RFB to contract with the Department in order to obtain funds appropriated for its operations, Respondent has forced the use of a cumbersome, inefficient, and inadequate mechanism that is simply not suitable for the purpose intended." Appellant's Brief at 18. Congress has expressly authorized Education to "provide, by grant or contract, for the distribution of . . . educational media and equipment . . . for handicapped individuals." 20 U.S.C. 1452(b)(4) (1988) (emphasis added).[foot #] 4 RFB asked to be given the contract in question. Finding 2. In doing so, it acknowledged that it had held similar contracts for the preceding twelve years and that it would "operate under a requirement[s] contract" if awarded this instrument. Id. Thus, in entering into this contract, Education was taking a statutorily authorized action which RFB desired. As an alternate avenue to relief, RFB asks the Board to exercise equitable powers to reform the contract by increasing the number of cassettes for which Education must pay, such that the additional number of cassettes multiplied by the unit price will equal the amount of money which Education claims it is due. In this regard, RFB states that during the time when the contract was in force, RFB made and distributed cassettes, in addition to those covered by the contract, which resulted in the firm incurring costs of more than one million dollars. Finding 8. The auditor found that RFB made sufficient tapes to reach the maximum numbers for which payment was authorized under the contract. Compare Finding 7 with Findings 1, 4, 6. RFB's decision to make and distribute more cassettes than these maximums was taken voluntarily. Whether Education will amend a contract to increase the number of cassettes for which reimbursement will be made is an entirely separate matter. It is a decision for the contracting officer. We are aware of no authority -- and RFB cites us to none -- which would permit a board of contract appeals to direct an agency to pay for any goods or services which the agency does not choose to acquire. Our mission is to review actions which did occur and to determine, under applicable law, the appropriate way in which to ----------- FOOTNOTE BEGINS --------- [foot #] 4 Since the period of time encompassed by the contract at issue here, Congress has additionally authorized Education "to make a grant or enter into a contract for the __________________________ purpose of providing current, free textbooks and other educational publications and materials to blind and other print- handicapped students . . . through the medium of transcribed tapes and cassettes." 20 U.S.C.A. 1452(d)(1) (West Supp. 1993); Pub. L. No. 101-476, 602, 104 Stat. 1103, 1140 (1990) (emphasis added). ----------- FOOTNOTE ENDS ----------- resolve disputes. We have held that in this contract, the performance of which has now been completed, RFB is obligated to repay $17,953 in unallowable costs to Education. Whether Education chooses to enter into a separate contract or other legal vehicle for forgiving this debt is not for us to decide. Decision The appeal is DENIED. The Government's claim is upheld. Interest is due on the amount owed, in accordance with the contract's requirement. See Finding 1; Sears Petroleum & Transport Corp., ASBCA 41401 (Jan. 5, 1994). _________________________ STEPHEN M. DANIELS Board Judge We concur: _________________________ _________________________ MARTHA H. DeGRAFF ALLAN H. GOODMAN Board Judge Board Judge