Board of Contract Appeals General Services Administration Washington, D.C. 20405 DENIED: June 22, 1999 GSBCA 14839 WORKRITE UNIFORM CO., Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Marc Lamer of Kostos and Lamer, Philadelphia, PA, counsel for Appellant. John E. Cornell and Robert T. Hoff, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges DANIELS (Chairman), PARKER, and BORWICK. DANIELS, Board Judge. Workrite Uniform Company (Workrite), the holder of a requirements contract awarded by the General Services Administration (GSA), claims that it is entitled to an increase in the contract price because the agency placed larger-than- expected orders under the contract. The parties have asked us to address at this time only the contractor's entitlement to costs; the precise amount to be recovered was reserved for later consideration, in the event we held for the contractor on entitlement. We conclude that Workrite has not shown that the agency acted in bad faith, a necessary prerequisite to recovery. The contractor is consequently not entitled to any additional payment for the items it supplied. We therefore deny the appeal. Findings of Fact 1. On September 30, 1996, GSA awarded to Workrite a contract for the supply of firefighters' shirts and jeans. Exhibit 11 at 1-2. The contract obligated GSA to purchase from Workrite (with an exception not relevant here), and Workrite to deliver, "such quantities [of these items] as may be needed from time to time to fill any requirements determined in accordance with current applicable procurement regulations and supply procedures" between November 1, 1996, and October 31, 1998. Id. at 2, 215. The contract price for each shirt ordered was $36.20, and the contract price for each pair of jeans ordered was $48.70. Id. at 4-43. 2. The contract mandated that each item be manufactured in accordance with a specification of the Forest Service, an organization within the United States Department of Agriculture, and the specifications were included in the contract. Exhibit 1 at 4-43, 48-166. The contract also included reduced print patterns "to aid in accurate bids" and stated that "full size patterns will be provided to the successful bidder." Id. at 172- 202. 3. Additionally, the contract contained delivery deadlines. First article samples, conforming to all specification requirements, had to be available "within 75 days after receipt of notice of award," to be delivered to the Government for inspection and determination as to compliance with the specifications. Exhibit 1 at 206. Delivery of each order was "required to be made at destination within 165 calendar days after receipt of [the] order[] or notice of approval of first article, whichever is later." Id. at 208. 4. The contract contained a clause entitled "Frequency of Orders," which read: In order to give Contractors an indication as to the frequency of orders, the number of orders expected to be placed during the contract period is shown in the Schedule in parenthesis next to the estimated peak monthly requirements shown for each item. Computations as to the frequency of orders are necessarily based on past experience, and Contractors are cautioned that this ordering pattern may change. This information is provided to facilitate Contractor's production planning and has no bearing on the contractual obligations of either party. Exhibit 1 at 3. The total quantity estimated to be ordered during the two-year period was shown as 103,050 shirts and 83,880 pairs of jeans. The estimated peak monthly requirement for shirts was 18,850, and for jeans was 16,860. Id. at 4-43. Because this case involves only orders for shirts, we will discuss jeans no further. ____________________ 1All exhibits are contained in the appeal file submitted by GSA and supplemented by Workrite. 5. The contract also contained a clause entitled "Monthly Supply Potential," which read: (a) The estimated requirements of the Government for the contract period and the estimated peak monthly requirements are shown in the schedule of items. Offerors are requested to indicate, in the spaces provided, the total quantity per month which they are willing to provide. This monthly supply potential may be used in order to preclude the placement of orders in excess of a Contractor's production capacity. Offerors are urged to group as many items or groups of items as possible in setting their monthly supply potential since the items or groups for which they may be eligible for award cannot be predetermined. Such grouping will make it possible to make the fullest use of the production capacity of each successful offeror. For example, if an offeror's production facilities can produce all of the items, or groups solicited, the offeror may insert a single overall limitation on the quantity that he can supply. Offerors are cautioned that in order to qualify for an award, their monthly supply potential must cover the Government's estimated peak monthly requirement for each item or group to be awarded. Groups or individual items will not be subdivided for award purposes. (b) . . . . OFFEROR'S MONTHLY SUPPLY POTENTIAL . . . Shirts item 1-11 - 24,000[2] . . . (c) For each offered item or group of offered items awarded pursuant to this solicitation, the Contractor shall be obligated to fill all orders for the items awarded . . . received during any one calendar month after the effective date of the contract if the aggregate total quantity of such orders does not exceed . . . his stated monthly supply potential . . . . (d) The Government is not required to order a part of any one requirement from the Contractor if that part of the requirement exceeds the limitations in paragraph[s] (a) and (b) above and may acquire the quantity that exceeds the [monthly supply potential] from another source. . . . (e) Notwithstanding paragraphs (c) and (d) above, the Contractor shall honor any order exceeding the ____________________ 2GSA's invitation for bids included a space here, for insertion by the bidder of a monthly supply potential. This line was inserted by Workrite in its bid which, when accepted by GSA, became the contract. limitations in paragraphs (a) and (b), unless that order (or orders) is returned to the ordering office within 5 days after receipt, with written notice stating the Contractor's intent not to ship the ordered item (or items) called for and the reasons. Upon receiving this notice, the ordering agency may acquire the supplies from another source without prejudice to either party. Exhibit 1 at 215-16. 6. Since first article samples had to be delivered to the Government within seventy-five days after receipt of notice of award, Finding 3, if Workrite received notice of award on the date of award, the samples had to be delivered by December 14, 1996. At the end of October 1996, and again in mid-November, Workrite expressed to GSA concern that it might not be able to meet this deadline because the Forest Service had not yet provided full size patterns for the shirts. Exhibits 4, 6; see Finding 2. By November 20, the Forest Service still did not know when the patterns would be available. Exhibits 10, 11. Workrite offered to make the patterns by applying computer technology to enhance the reduced print patterns in the contract. Exhibits 12- 14. On December 23, the Forest Service accepted the patterns proposed by the contractor. Exhibit 19. Workrite then requested a seventy-five-day extension of the date for delivery of first article samples. Exhibit 20. On January 17, 1997, the contract was bilaterally amended to extend the date to March 17. The modification was issued at no cost and states expressly, "All other terms and co[n]ditions of the contract remain[] unchanged." Exhibit 22. The record does not contain any evidence that prior to the issuance of this contract modification, Workrite ever sought any relief other than what was contained in the modification consequent to the problems with the patterns. 7. At the end of January, during testing of the shirts, a problem was discovered with the specifications. When seams were constructed in accordance with the prescribed technique, they failed a mandated strength test. Complaint 7; Answer 7. Workrite asked GSA to allow it to construct seams differently, so that they could pass the strength test. The contractor cautioned that the alternative technique would require more labor and different machines, and would therefore increase costs. Exhibit 23. The Forest Service concurred with Workrite's proposal to use a different construction technique, and GSA accepted it. Exhibits 24, 26-28. Workrite asked that the price of each shirt be increased by $1.25 (later modified to $1.13) as a result of this change. Exhibits 29, 32, 33. On March 10, the parties bilaterally amended the contract to allow use of the alternative technique and increase the price of each shirt by $1.13. At the same time, they extended the date for delivery of first article samples to March 31. The modification states expressly, "All other terms and conditions of the contract remain[] unchanged." Exhibit 34. The record does not contain any evidence that prior to the issuance of this contract modification, Workrite ever sought any relief other than what was contained in the modification consequent to the problems with the seams. 8. Workrite provided the first article samples to GSA on March 31. Exhibit 39. The Forest Service recommended conditional approval of the samples on April 16 and again on May 16. Exhibits 40, 48. Workrite corrected the deficiencies noted. Exhibits 45, 47, 50, 51. The Forest Service recommended final approval on May 29, and GSA gave it on the same date. Exhibits 53, 54. 9. On May 21, GSA sent Workrite orders for the supply of 23,550 shirts. Exhibit 81. Under the terms of the contract, these shirts had to be delivered by November 10 (165 days after the contractor's receipt of the notice of approval of first article samples -- see Finding 3). On June 20, the agency sent the contractor orders for the supply of an additional 23,550 shirts. Exhibit 82. These shirts had to be delivered by December 2 (165 days after the contractor's receipt of the order -- see Finding 3). 10. The record contains very little information about Workrite's compliance with these orders. It shows that GSA identified as priority items 5,000 of the shirts ordered in May. Exhibit 52. By August 26, the contractor had shipped almost all of these shirts and expected to ship the rest within a week. Exhibit 55. On September 30, the contracting officer told Workrite that she would extend delivery dates on orders for some sizes of shirts. Exhibit 62. A month later, however, she noted that "[b]y November 21st they will be completed with all orders in house." Exhibit 64. 11. On February 17, 1998, Workrite submitted to the contracting officer a claim in the amount of $324,607.80. According to the claim, meeting the agency's placement of large orders for shirts had disrupted the contractor's planned production build-up. Workrite said that it was able to deliver the ordered items only by hiring, training, and assigning additional personnel to the production, and by working overtime. The contractor maintained that its unit cost for labor increased from $2.87 to $6.36 per shirt, and applying to the additional labor charge successive markups of eighty percent for overhead and nine percent for profit, the cost of the agency's actions was $6.85 per shirt. The total amount of the claim is this per-shirt incremental charge times 47,388 shirts, which Workrite said was the number of units delivered. Exhibit 67. The contractor later supplied information in support of the claim. Exhibit 72. The contracting officer agreed to issue a decision on the claim by October 23, Exhibit 75, but she did not render a decision by that date. Workrite appealed her deemed denial of the claim. Exhibit 79. Discussion This case involves a requirements contract. We consider it in light of the guidance provided on the law applicable to such contracts by the Court of Appeals for the Federal Circuit in its recent decision in Technical Assistance International, Inc. v. United States, 150 F.3d 1369 (Fed. Cir. 1998). The Court explained that a requirements contract is "primarily designed to provide a buyer with flexibility in operating its business." 150 F.3d at 1371-72. "The buyer is generally accorded significant freedom in determining its requirements under a requirements contract because it has specifically bargained for such flexibility." Id. at 1372. "[In a requirements contract,] the risks associated with variance between actual purchases and estimated quantities are allocated to the contractor." Id. (quoting Medart, Inc. v. Austin, 967 F.2d 579, 581 (Fed. Cir. 1992)). The Court stated further that the law imposes "some limits on the buyer" in a requirements contract, "lest [the buyer] be permitted to vary its requirements to such an extent that the seller is exposed to an undue risk of severe economic hardship." 150 F.3d at 1372. With regard to the Government's ability to vary its requirements from those estimated, "[t]he only limitation . . . is that it must do so in good faith." Id. at 1373. "A buyer acts in good faith if it has a valid business reason for varying its requirements other than dissatisfaction with the contract." Id. at 1372. The Uniform Commercial Code contains a separate restriction on a buyer's freedom to vary its requirements -- the buyer cannot demand a quantity "unreasonably disproportionate to any stated estimates" -- but this standard is not applicable in this Circuit. Id. Consistent with its exposition of the law, the Court of Appeals held that when a seller alleges that a buyer has breached a requirements contract by varying its requirements, "the burden of proof is on the seller to prove that the buyer acted in bad faith." 150 F.3d at 1373. "In the absence of such a showing, the buyer will be presumed to have varied its requirements for valid business reasons, i.e., to have acted in good faith, and will not be liable for the change in requirements." Id. Absent proof of bad faith, GSA's placement of orders under its requirements contract with Workrite would be unexceptional. The contract required GSA to order all the firefighters' shirts it needed (save those subject to an exception not relevant here) from Workrite. Finding 1. It required the contractor to fill all orders the agency placed, up to a "monthly supply potential" which the contractor designated. (The contractor could refuse orders for quantities in excess of that potential.) Finding 5. Workrite could have received the contract if it had designated a monthly supply potential of as few as 18,850 shirts. Id. For reasons best known to it, and not explained in the record, the contractor agreed to fill all orders placed within any month for a larger number -- up to 24,000 shirts. Id. GSA placed with Workrite during two different months two sets of orders about which we have been informed, and neither of these was for as many as 24,000 shirts. Finding 9. Although the number of shirts in each set of orders was larger than the agency had estimated to be a "peak monthly requirement," it was not larger than the amount the contractor had agreed to supply. Findings 4, 5. The quantities were within the contemplation of the parties, as expressed in the contract, so (unless the placement of the orders was contaminated by bad faith on the part of the agency) Workrite was obligated to fill those orders at the price specified. Even where a contractor demonstrated that the quantity of goods ordered under a requirements contract was unexpectedly high, because a backlog had accumulated during months of agency delay in award of the contract, the contractor was not entitled to an increase in the price of the goods where it had indicated in its offer that it could and would fill the order. Max Blau & Sons, Inc., GSBCA 9827, 91-1 BCA 23,626, at 118,378 (1990); see also Victory Container Corp., GSBCA 5596, 81-2 BCA 15,346, at 76,022 (quantities ordered within contractor's monthly supply potential presumed reasonable). A company's agreement to a requirements contract constitutes acceptance of the risk that heavy demands under that contract can be placed on production capacities. Tommy Nobis Center, Inc., GSBCA 8898-TD, et al., 89-3 BCA 22,122, at 111,224 (citing Allied Paint Manufacturing Co. v. United States, 470 F.2d 556, 567 (Cl. Ct. 1972)). Workrite alleges that when it bid on this contract, it was "expecting ordering patterns roughly in accordance with the monthly estimates, i.e. a steady flow of orders throughout the contract period rather than concentration of a large quantity in a short period." Appellant's Brief at 7.3 If the contractor did enter into the contract with this expectation, it was taking a considerable risk, given the "Frequency of Orders" clause's caution as to the uncertainty of the agency's ordering pattern. See Finding 4. When the seller under a requirements contract gambles that the buyer will order only a limited number of units, it must live with the consequences. Betakut USA Inc. v. General Services Administration, GSBCA 12512, 94-2 BCA 26,945, at 134,180. Consequently, Workrite's claim must fail unless, consistent with Technical Assistance International, the contractor can demonstrate that the agency's actions were taken in bad faith. We consider Workrite's allegations in light of this standard. ____________________ 3A memorandum from a GSA quality assurance specialist, dated October 31, 1996, also addresses Workrite's expectations on entering into the contract. It states, "[Workrite officials] indicated . . . that they need to add production area and equipment to meet the [monthly supply potential]. They are in the process of getting this and expect to have it before time to begin production." Exhibit 4. The contractor makes two principal contentions in support of its claim. First, it maintains that "GSA breached its duty of cooperation with Workrite, resulting in a de facto change in the contract." Appellant's Brief at 8. The contractor alleges that three actions constituted breach: placing two incompatible specifications in the contract; delaying the placement of orders until the specification inconsistency had been resolved; and failing to apprise Workrite of the Government's needs during the months in which orders were not placed. Second, the contractor asserts, "The parties operated under the mistaken belief that the specification was acceptable for use and, thus, Workrite is entitled to a reformation of the agreement." Id. at 14. In its reply brief, the contractor formulates these arguments somewhat differently and adds the allegation that the estimates of orders contained in the contract were erroneous and the product of Government "misfeasance" in that they were made without use of "the best information available." Appellant's Reply Brief at 1 n.1. Workrite dresses up these contentions with a good deal of legalistic language and a multitude of citations to decisions by courts and boards of contract appeals. All this is to no avail. We hold that the contractor has not met the test of Technical Assistance International by showing that the Government acted in bad faith. Workrite's efforts serve only to prove the truth of the old adage that you can't make chicken salad out of chicken feathers. GSA's placement of incompatible specifications in the contract -- the first action alleged by Workrite to be a breach -- did not constitute bad faith. Whatever harm might have been caused by this action was remedied by the parties' agreement to a contract modification which allowed the use of an alternative seam construction technique and increased the price per shirt. Workrite did not request any other relief from this problem, and the modification did not provide for any. Finding 7. The parties' agreement to the modification bars further claims stemming from the same problem. Centennial Leasing v. General Services Administration, GSBCA 11451, 93-1 BCA 25,350, at 126,266 (1992); Jordan & Nobles Construction Co., GSBCA 8349, et al., 91-1 BCA 23,659, at 118,514 (1990); Pittman Construction Co., GSBCA 4897, et al., 81-1 BCA 14,847, at 73,299 (1980). Similarly, any difficulties which may have resulted from the Government's failure to provide patterns for the shirts promptly may not form the basis for a claim, since those difficulties were resolved by the parties' agreement to a contract modification. See Finding 6. GSA's not having apprised Workrite of the Government's needs for firefighters' shirts during the months in which orders were not placed does not constitute bad faith, either. The cases cited by Workrite for the general proposition that the Government is obliged to cooperate with a contractor in the course of contract performance were all decided without reference to the bad faith standard enunciated in Technical Assistance International. Furthermore, the cases involve situations significantly different from the one at issue here. Most of them deal with contracts for construction, not requirements contracts for the production and supply of goods, and they feature varieties of interference which are peculiar to construction and were not present here. See Malone v. United States, 849 F.2d 1441 (Fed. Cir. 1988) (misleading contractor as to the standard of workmanship required for painting houses); Lewis-Nicholson, Inc. v. United States, 550 F.2d 26 (Ct. Cl. 1977) (negligent surveying of the area, failure to make work site available, and delay in making necessary design changes); R. W. Jones Construction, Inc., IBCA 3656-96, 99-1 BCA 30,268 (failure to provide access to work site, communicate regarding project design, and approve plans promptly).4 One case involves interference with a supply contract, but it was not a requirements contract and the problem there -- disruption and delay due to excessive, arbitrary, and uncooperative inspections -- was completely unlike anything that happened to Workrite. G. W. Galloway Co., ASBCA 16656, et al., 73-2 BCA 10,270, at 48,499-501. In the single case cited by the contractor which involves a requirements supply contract, the Board found a breach because the Government, acting inconsistently with its own regulations, placed a moratorium on the purchase of the goods in question and consequently did not purchase its requirements for those items from the contractor (or anyone else). Adams Manufacturing Co., GSBCA 5747, 82-1 BCA 15,740, at 77,889. The instant case is similar to Adams in that for several months after award of the contract to Workrite, the agency placed no orders for firefighters' shirts with the contractor. Here, however, orders were eventually placed, and the contractor has made no showing that they did not encompass all the agency's requirements. Nor, since the orders were within the quantities Workrite had agreed to supply at a specified per-unit price and the contractor has not shown any malicious intent in the placing of the orders, might we consider that Workrite was prejudiced by any temporary withholding of orders. Adams does say that the Government is obliged, as a matter of law, to be forthcoming with information about changes in requirements. 82-1 BCA at 77,890. Workrite notes that the record contains a memorandum from a GSA employee to the contracting officer, dated November 14, 1996 (shortly after contract award), which states that GSA "need[s] to have in the warehouse by June 1st to support the fire season" 62,100 firefighters' shirts. The memorandum states that a portion of this quantity had already been ordered from the predecessor contractor. Exhibit 6. From this memo, Workrite concludes that ____________________ 4Workrite also references a decision on a contract for the removal and disposal of hazardous waste, Ecoflo, Inc., HUDBCA 96- ____________ B-135-C17, 97-1 BCA 28,730. Because this case was decided under the small claims procedure authorized by the Contract Disputes Act, 41 U.S.C. 608(a) (1994), it has no value as precedent. Id. 608(e). We therefore do not discuss it here. ___ GSA knew for months before placing any orders that it would need a large quantity of shirts, but withheld that information from the contractor. The argument is not helpful to the contractor. We are not certain, in light of Technical Assistance International, whether any failure by an agency to provide information about changes in its requirements after award of a requirements contract could by itself be considered bad faith sufficient to serve as the basis for recovery. Even if it is, Workrite's conclusion is speculative: Because we do not know how many shirts were to be supplied from the predecessor contractor, we cannot tell how many would have to be ordered from Workrite to meet the objective. More important, even if the contractor's assumption is correct, it had no effect on the orders GSA actually placed. The memo pertains to the 1997 fire season, but the agency did not order any shirts for that season. The shirts it did order were for delivery in November and December, Finding 9, and the fire season was over by the end of September. Exhibit 60.5 It may be that GSA did not place any orders under the contract until it was convinced that first article samples would soon be approved. See Findings 8, 9. Such a course of action can hardly be deemed to have been in bad faith, however; to the contrary, it would appear to have been prudent. GSA never did anything under the contract other than what it was entitled to do -- order its requirements for firefighters' shirts from Workrite, and allow the contractor to refuse to provide any quantities in excess of 24,000 in any month. With regard to the contention that the contract should be reformed because the parties formulated it on the basis of a mutual mistake as to the seam specifications, Workrite correctly notes that, as stated in Atlas Corp. v. United States, 895 F.2d 745, 750 (Fed. Cir.), cert. denied, 498 U.S. 811 (1990): A party seeking to state a claim for reformation of a contract under the doctrine of mutual mistake must allege four elements: (1) the parties to the contract were mistaken in their belief regarding a fact; (2) that mistaken belief constituted a basic assumption underlying the contract; (3) the mistake had a material effect on the bargain; and ____________________ 5As close as GSA came to ordering shirts for the 1997 season was making a request that a small portion of the orders required to be filled in November be considered priority items. Workrite complied with this request without complaint. Finding 10. (4) the contract did not put the risk of the mistake on the party seeking reformation. See also Altmayer v. General Services Administration, GSBCA 12720, 94-3 BCA 27,070, at 134,904; Management & Training Corp. v. General Services Administration, GSBCA 11182, et al., 93-2 BCA 25,814, at 128,520. The contractor's assertion that "all four elements can be established" in this case, Appellant's Brief at 15, is not correct, however. Workrite has provided no evidence as to the second and third parts of the test, and without it, the assertion inevitably fails. Further, as we have already commented, the parties' agreement to a contract modification resolving problems caused by the inconsistent specifications bars further claims stemming from the same problem. In addition, the two cases cited by the contractor as supporting its position on this theory do nothing of the sort. In McNamara Construction of Manitoba, Ltd. v. United States, 509 F.2d 1166 (Ct. Cl. 1975), the court held that the contractor's mistaken assumption as to labor conditions was not a mutual mistake which could serve as the basis for reformation. Workrite's citation to a contrary conclusion in the decision is to a portion of the dissenting opinion. Appellant's Brief at 16; 509 F.2d at 1179. National Presto Industries, Inc. v. United States, 338 F.2d 99 (Ct. Cl. 1964), cert. denied, 380 U.S. 962 (1965), was an extraordinary case in which the court's finding of mutual mistake was grounded in large part on a finding that the manufacture in question was "a new and joint enterprise in which neither party had any real expertise or background." Id. at 109. The contract at issue here cannot be so characterized. The record is devoid of any evidence as to how GSA formulated the estimates contained in the contract regarding its expectations for shirt orders or what information (if any) was available to the agency, but not used by it, in making those estimates. There is consequently no basis for finding, as Workrite suggests, that the estimates were erroneous and the product of Government "misfeasance" in that they were made without use of "the best information available." This case is very different from Travel Centre v. General Services Administration, GSBCA 14057, 98-1 BCA 29,422 (1997), reconsideration denied, 98-1 BCA 29,536, full Board consideration denied, 98-2 BCA 28,849 (referenced by Workrite). There, we found evidence that the agency directed prospective offerors to base their offers on estimates of orders which it knew (or recklessly disregarded information that gave it every reason to know) were vastly overstated, and on the basis of that evidence, we concluded that the agency had acted in bad faith. Decision Workrite has not shown that GSA's placement of orders under this requirements contract was made in bad faith. The appeal is consequently DENIED. _________________________ STEPHEN M. DANIELS Board Judge We concur: _________________________ _________________________ ROBERT W. PARKER ANTHONY S. BORWICK Board Judge Board Judge