Before Lourie, Clevenger, and Bryson, Circuit Judges.
The opinion of the court was delivered by: Bryson, Circuit Judge.
Appealed from: United States Court of Federal Claims
This case requires us to determine how much freedom the government has to vary its requirements when it enters into a requirements contract. The government entered into a requirements contract with Technical Assistance International, Inc., (TAI), pursuant to which TAI was to maintain and repair the Army's vehicle fleet at the White Sands Missile Range. The United States Court of Federal Claims held that when the government increased the rate at which it replaced the older vehicles in the fleet, and thus decreased its requirements for vehicle maintenance and repair services, the government violated its contractual obligations to TAI. We reverse.
In early 1992, the Army consolidated its fleet of general purpose vehicles at the White Sands Missile Range into the Interagency Fleet Management System. The Interagency Fleet Management System is a federal agency service program under which the General Services Administration (GSA) assumes ownership of and maintenance responsibilities for fleets of vehicles formerly owned and maintained by various federal agencies. The purpose of the program is to achieve economies of scale in the purchasing, management, and servicing of such fleets.
The average age of the vehicles in the Army's White Sands fleet before being transferred into the GSA program was eight years. One of the Army's goals in consolidating its fleet into the GSA program was to bring the fleet up to GSA standards, which call for vehicles to be replaced after three to six years of use (depending on vehicle type and mileage). Because GSA could not afford to replace all of the Army's old vehicles at once, it committed itself to bringing the Army's fleet up to its replacement standard over a five-year period. Of particular relevance to this case, GSA and the Army agreed that during the first year of consolidation, GSA would replace at least 30% of the vehicles eligible for replacement, and perhaps a higher percentage if it had the resources to do so.
GSA does not service and repair vehicles itself, but instead hires on-site contractors to perform those services. On November 15, 1991, GSA issued a bid solicitation for a requirements contract for the maintenance and repair of the White Sands vehicle fleet. As part of that solicitation, GSA prepared an estimate of the fleet's maintenance and repair needs, itemized by service types. Because GSA had not previously procured maintenance services for the White Sands fleet, it did not have any historic bid or price data to use in formulating the estimate. Instead, GSA based its estimate on a number of factors, including the number and types of vehicles in the fleet, the terrain and typical use of vehicles at White Sands, a review of GSA service contracts at similar sites, and GSA's commitment to replace at least 30% of the vehicles eligible for replacement during the first year of consolidation.
GSA awarded the contract to TAI on March 30, 1992. The contract term began on May 1, 1992, and was to run for one year, with two one-year options to renew at the government's discretion. Within two months of beginning performance, TAI projected that the work required for the White Sands fleet was going to fall considerably short of GSA's estimate. TAI submitted a request for an equitable adjustment based on the projected shortfall, as well as a certified claim for compensation based on a charge that GSA's contract estimate was prepared negligently. GSA denied the requested relief.
TAI subsequently filed suit in the Court of Federal Claims. The complaint alleged that TAI suffered damages as a result of the government's negligent estimate preparation. On cross-motions for summary judgment, the trial court ruled that the government had not been negligent in the preparation of its estimate, but the court nonetheless held that the government had breached its obligations under the contract and that TAI was entitled to relief.
In reaching its decision, the court relied on testimony from Virlene Griffin, the Group Leader of Operations for GSA's Fleet Maintenance Division, that during the first year of consolidation, GSA replaced more than twice the number of vehicles it had expected to replace. Ms. Griffin testified that there were a number of factors that resulted in the accelerated replacement rate, including the downsizing of GSA fleets at several nearby locations, the grant of permission from the Office of Management and Budget for GSA to acquire new cars through leasing as well as purchasing, and the delivery of new vehicles that had been ordered before the consolidation of the Army's fleet.
The court held that when a contractor enters into a requirements contract, it assumes only the risk of a change in requirements caused by to the "vagaries of user demand." Technical Assistance Int'l, Inc. v. United States, No. 93-68 C, slip op. at 2 (Fed. Cl. Feb. 8, 1996). The court regarded the accelerated rate at which GSA replaced the fleet's older cars to have been prompted by fleet surpluses at other locations, rather than by a change in the "indigenous needs" of the facility that TAI contracted to serve. Technical Assistance Int'l, Inc. v. United States, No. 93-68 C, slip op. at 1 (Fed. Cl. May 23, 1997). The court reasoned that TAI had not assumed the risk that GSA would increase the rate of replacement of the White Sands fleet in the event other GSA fleets developed a surplus. For that reason, the court concluded that when the government reduced its requirements by increasing the replacement rate for the White Sands fleet, the government effected a constructive change in the contract and breached its contractual obligations to TAI.