John C. Grimberg Company, Inc. v. The United States

869 F.2d 1475, 1989 WL 21864

• Court: Court of Appeals for the Federal Circuit
• Decided: June 22, 1989
• Docket: 88-1378
• Status: Published

Opinions

BISSELL, Circuit Judge.

The decision of the Armed Services Board of Contract Appeals (ASBCA), John C. Grimberg, Co., ASBCA No. 32288, 88-1 BCA 11 20,346 (1987) [1987 WL 46574], reconsideration denied, 88-2 BCA If 20,713 (1988) [1988 WL 44422], affirming the contracting officer’s denial of the equitable price adjustment claim of John C. Grim-berg Company, Inc. (Grimberg), is reversed and remanded.

BACKGROUND

On December 9, 1983, the United States Navy issued an invitation for bids on construction work at the Bethesda, Maryland Naval Center. The $3,330,000 fixed price contract included fabrication and installation of exterior precast concrete wall panels. Prior to bidding, Grimberg solicited precast panel quotations from several domestic subcontractors but received only one. Arban & Carosi (A & C) quoted a price of $245,000 — $165,500 for fabrication and $79,500 for erection, caulking and cleaning. The Navy awarded Grimberg the contract on March 15, 1984. Shortly thereafter, Grimberg unsuccessfully attempted to contact A & C to consummate the subcontract. After failing to reach A & C, Grimberg resolicited the domestic vendors previously contacted and received two quotations of $205,000 and $200,918 covering only the precast panel fabrication. Grim-berg, however, subcontracted the fabrication and erection to a Canadian firm, Beer Precast Concrete, Ltd., for $237,000— $120,000 for fabrication and delivery and $117,000 for erection and other miscellaneous work.

The Navy rejected the submittal of panel drawings because use of the Canadian fabricator violated the Buy American Act, 41 U.S.C. §§ 10a-10d (1982) (BAA). Grimberg requested a waiver of the BAA but the Navy refused. Faced with construction deadlines, Grimberg chose to obtain the precast panels from a domestic subcontractor and incurred costs of $200,000 for fabrication, $59,000 for erection, and approximately $23,000 for miscellaneous work.

Pursuant to the contract’s disputes clause, Grimberg submitted an equitable adjustment claim for $53,847. The Navy denied the claim, determining that a post-award BAA waiver was not warranted. The ASBCA denied Grimberg’s appeal, Grimberg, 88-1 BCA at 102,895, and subsequent motion for reconsideration, Grim-berg, 88-2 BCA at 104,664.

ISSUE

Whether the ASBCA erred as a matter of law by failing to apply the criteria for determining unreasonable price differentials under the BAA and thereby abused its discretion by not granting an equitable adjustment.

OPINION

I.

Grimberg’s claim is based on the Navy’s failure to grant a post-award exception to the BAA. Without a waiver, Grimberg was prohibited from using the lower priced Canadian fabricated panels. The BAA requires that only domestic materials be used for public works contracts unless the head of an agency determines that such use is inconsistent with the public interest or the cost is unreasonable. 41 U.S.C. § lOd. The BAA primarily provides a competitive preference to domestic materials in awarding government contracts. Watkins, Effects of the Buy American Act on Federal Procurement, 31 Fed.Bar J. 191, 194 (1972); see also John T. Brady & Co. v. United States, 693 F.2d 1380 (Fed.Cir.1982) (stating that the BAA. “is directed primarily to the period prior to the award”).

The BAA is implemented by an Executive Order that provides in pertinent part:

[Section 2.](b) For the purposes of ... this order, the bid or offered price of materials of domestic origin shall be deemed to be unreasonable ... if the bid or offered price thereof exceeds the sum of the bid or offered price of like materials of foreign origin and a differential computed as provided in subsection (c) of this section.

[Section 2.](c) The executive agency concerned shall in each instance determine the amount of the differential referred to in subsection (b) of this section on the basis of one of the following-described formulas ...:

(1) The sum determined by computing six percentum of the bid or offered price of materials of foreign origin.

[Section 5.] ... In any case in which the head of an executive agency proposing to purchase domestic materials determines that a greater differential than that provided in this order between the cost of such materials of domestic origin and materials of foreign origin is not unreasonable ... this order shall not apply.

Exec. Order No. 10,582, 3 C.F.R. 230 (1954-58), reprinted in 41 U.S.C. § lOd app. at 1042 (1982) (hereinafter Executive Order No. 10,582).

II.

The ASBCA’s interpretation of the BAA is a conclusion of law freely reviewable by this court. See United States v. Lockheed Corp., 817 F.2d 1565, 1567 (Fed.Cir.1987). The ASBCA denied Grimberg’s appeal because it determined that the cost of domestic panels was not unreasonable in light of “the flexibility afforded procuring departments and agencies by Section 5 of the Executive Order [No. 10,582], and in light of the Brady guidelines.” Grimberg, 88-1 BCA at 102,895. With regard to post-award equitable adjustments, we conclude that the ASBCA erred as a matter of law in interpreting the BAA and Brady.

The ASBCA erroneously construed section 5 of Executive Order No. 10,582 and disregarded the flexibility it affords the agencies in determining BAA waivers. The fact that the head of an agency is empowered to establish greater price differentials under section 5 does not mean that one should be established. Section 5 does not dictate greater price differentials, but rather represents an available option. If the agency head chooses not to exercise that option, the price differentials of section 2 become mandatory for determining what is unreasonable under the BAA. See L.G. Lefler, Inc. v. United States, 6 Cl.Ct. 514, 519 & n. 5 (1984) (holding that a waiver must be granted when the price differential standards are met and that the same standards used pre-award should apply post-award); Keuffel & Esser Co., 42 Comp.Gen. 608, 612 (1963) (explaining that the “Executive order fixes the differentials which shall be considered in determining unreasonable cost, unless the agency head determines,” under section 5, that a greater price differential is not unreasonable); see generally Watkins, 31 Fed.Bar J. 191.

The plain language of Executive Order No. 10,582 supports this conclusion. Section 2(b) provides that the price of domestic materials “shall be deemed to be unreasonable” if it exceeds the price of like foreign materials plus a section 2(c) differential. Section 2(c) requires the executive agency to determine the price differential of section 2(b) based on one of the formulas set forth in section 2(c)(1) and (2). Therefore, in evaluating unreasonableness under the BAA, the formulas of section 2 become mandatory unless the head of the agency determines that a greater price differential should be applied.

In this case the fabrication price differential between the Canadian firm and the domestic firm is more than three times the differential established by section 2(c)(1), and the agency head¹ has never determined that an alternative differential should be applied. Therefore, the ASBCA erred in not applying the prescribed formulas.

In post-award situations, however, that does not end the inquiry. Post award, an exception to the BAA is granted under the contract’s changes clause only where warranted by the circumstances. Brady, 693 F.2d at 1385-86. If all existing BAA criteria are met, the decision to grant a change is discretionary. See John T. Brady & Co., VABCA No. 1300, 84-1 BCA ¶ 16,925, at 84,196 (1983) [1983 WL 13698] (interpreting the Federal Circuit’s instructions on remand). The ASBCA misconstrued Brady, by reading that decision as establishing a narrow range of circumstances for granting post-award exceptions. Grimberg, 88-2 BCA at 104,664. Brady merely holds that the BAA does not preclude post-award waivers and that additional factors may be considered in determining whether or not to grant an equitable adjustment.² See Brady, 693 F.2d at 1385-86.

In granting an equitable adjustment in the Brady remand, the Veterans Administration Contract Appeals Board (VACAB) recognized that “the request for an exception would have resulted in no increase in cost to the Government, in fact there may have been sufficient basis for a credit to the Government.” Brady, 84-1 BCA at 84,196-97. The VACAB also realized the severe consequences to the contractor that the additional cost would bring and stated:

“[i]t is certainly in the public interest to grant legally permissible exceptions where there is no resulting expense to the Government, and where to grant such an exception serves to increase the public’s perception of its Government as one which deals fairly with its contractors.” Id., at 84,197.

Here, Grimberg originally bid the panel fabrication at $165,500. After being awarded the contract, Grimberg found that it could not obtain the panels domestically at that price. Grimberg solicited a foreign bid of $120,000 and the Navy improperly denied a BAA waiver. Grimberg, ultimately obtained the panels from a domestic source for $200,000. Had the Navy granted the waiver, no increase in cost would have been incurred and the government may have been entitled to a credit. Instead, Grimberg was saddled with an additional fabrication cost of $34,500 beyond that which it had originally quoted.³

The failure to grant the requested waiver was an abuse of discretion. The Navy’s actions constituted a constructive change and Grimberg is entitled to an equitable adjustment as prescribed by the contract. Accordingly, we reverse and remand to the ASBCA for a determination of the quantum due Grimberg.

COSTS

Each party is to bear its own costs.

REVERSED AND REMANDED.

1 . The dissent contends that the head of the agency delegated his authority under section 5 of the Executive Order to the contracting officer. The general provisions of this contract in defining "head of agency" explicitly prohibit delegation to the contracting officer.

2 . The dissent’s conclusion sets forth a bright line test for permitting post-award exceptions to the BAA. Such a test is unwarranted; the granting of an equitable adjustment is discretionary and should not be so limited.

3 .Footnote two of the dissent misreads the function served by the calculation delineated in Allis-Chalmers Corp. v. Friedkin, 481 F.Supp. 1256, 1266-68 (M.D.Pa.), aff’d, 635 F.2d 248 (3d Cir.1980). That calculation is for ascertaining the lowest bidder after the BAA surcharges have been properly added to the foreign bid, not for determining the propriety of granting a waiver to the BAA. The dissent's calculations are misleading.