Free Motion for Partial Summary Judgment - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS No. 03-1216C (Judge Wiese) PLACID HOLDING COMPANY, Plaintiff, v. THE UNITED STATES, Defendant. DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT PETER D. KEISLER Assistant Attorney General DAVID M. COHEN Director OF COUNSEL: STEVEN J. GILLINGHAM Senior Trial Counsel KYLE CHADWICK Trial Attorney Commercial Litigation Branch Civil Division Department of Justice Attn: Classification Unit 8th Floor 1100 L Street, N.W. Washington, D.C. 20530 Telephone: (202) 616-2311 Facsimile: (202) 353-7988 Attorneys for Defendant August 15, 2003

BERNARD A. DUVAL Counsel Defense Energy Support Center Fort Belvoir, VA 22060 HOWARD M. KAUFER Trial Attorney Defense Energy Support Center Fort Belvoir, VA

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TABLE OF CONTENTS Page STATEMENT OF THE ISSUES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 STATEMENT OF THE CASE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 I. II. Nature Of The Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Other Litigation Concerning The DESC EPA Clauses . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

SUMMARY OF MATERIAL FACTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 I. II. The Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 The FAR Deviations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

SUMMARY OF THE ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ARGUMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 I. II. III. IV. The Summary Judgment Standard . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 The EPA Clauses In One Of The Five Contracts At Issue Was Unquestionably Legal Because It Was Properly Approved Through The FAR Deviation Process . . . . . . 10 Barrett Neither Requires Nor Supports A Finding of Illegality . . . . . . . . . . . . . . . . . . . . 11 Placid Cannot Demonstrate That The DESC EPA Clauses Are Prohibited . . . . . . . . . . 12 A. B. C. D. E. F. V. Plaintiff Must Identify An Explicit Prohibition . . . . . . . . . . . . . . . . . . . . . . . . . . 12 FAR 16.203-1 Does Not Prohibit The EPA Clauses . . . . . . . . . . . . . . . . . . . . . . 14 The Clauses At Issue Are "Established Price" Clauses Within FAR 16.203-1(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 FAR 16.203-3 Does Not Prohibit The DESC Clauses . . . . . . . . . . . . . . . . . . . . 20 The Agency Did Not Abuse Its Discretion In Selecting The Clauses At Issue . . 22 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Placid Has Waived Its Right To Challenge The EPA Clauses . . . . . . . . . . . . . . . . . . . . 25 -i-

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VI. VII.

If The Clauses Are Illegal, Placid Still Must Demonstrate That A Remedy Is Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 If Placid Is Entitled To Quantum Valebant, It May Not Disregard Its Contract Prices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 INDEX TO APPENDIX Documents Page Number

Declaration of John r. Walker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-9 Declaration of George R. Schink . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10-13 DESC Notification of Change in Contracting Procedures, dated January 23, 1981 . . . . . . . 14-19 Contract No. DLA600-92-D-0503 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20-29 DESC Request for Deviation, dated January 5, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30-61 DLA Approval of One-Time Deviation, dated January 14, 1993 . . . . . . . . . . . . . . . . . . . . . . . . 62 DLA Approval of One-Time Deviation, dated February 3, 1993 . . . . . . . . . . . . . . . . . . . . . . . . 63 Memos (two) from Nancy L. Ladd, Colonel, USAF, dated March 9, 1993 . . . . . . . . . . . . . 64-65 Approved Agency/Component Regulations by Eleanor Spector, dated March 22, 1993 . . . 66-72 DESC Request for One-Time Deviation, dated September 6, 1994 . . . . . . . . . . . . . . . . . . . 73-76 DLA Approval of Individual Deviation, dated November 15, 1994 . . . . . . . . . . . . . . . . . . . . . . 77 Request for Class Deviation and Permanent Coverage in DLAR, dated January 4, 1995 . . . 78-82 Notice of Proposed Rule, 60 Fed. Reg. 10826, February 28, 1995 . . . . . . . . . . . . . . . . . . . . 83-86 Notice of Final Rule, 64 Fed. Reg. 41834, August 2, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . 87-89 Letter From National Security Industrial Association to DLA, dated May 1, 1995 . . . . . . . 90-91 Request for Class Deviation and Permanent Coverage in DLAR, dated May 12, 1995 . . . . 92-96 -ii-

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DESC Request for Individual Deviation, dated February 22, 1995 . . . . . . . . . . . . . . . . . . . . . . . 97 DLA Approval of Individual Deviation, dated March 2, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . 98 Approval of Class Deviation by Eleanor R. Spector, Director of Defense Procurement, dated October 5, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99-100 Certified Claim of Placid Holding Company, dated January 2, 2001 . . . . . . . . . . . . . . . . 101-163 Contracting Officer's Final Decision, dated May 20, 2002 . . . . . . . . . . . . . . . . . . . . . . . . 164-171 TABLE OF AUTHORITIES FEDERAL CASES Page A. C. Auckerman Co. v. R. L. Chaides Construction Co., 960 F.2d 1020 (Fed. Cir. 1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Ace Services, Inc. v. GSA, GSBCA No. 11331, 92-2 B.C.A. 24 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 American Telephone & Telegraph Co. v. United States, 48 Fed. Cl. 156 (2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 In re American Res. Corp., 840 F.2d 487 (7th Cir. 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 American Telephone and Telegraph Co. v. United States, 307 F.3d 1374 (Fed. Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Anderson v. Liberty Lobby, Inc., 477 U.S. 242 (1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Barrett Refining Corp. v. United States, 42 Fed. Cl. 128 (1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 11, 35 Barrett Refining Corp. v. United States, 45 Fed. Cl. 166 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Barrett Refining Corp. v. United States, 242 F.3d 1055 (Fed. Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

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Beacon Oil Co. v. Secretary of Energy, 71 F.3d 391 (Fed. Cir. 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Beta Systems, Inc. v. United States, 838 F.2d 1179 (Fed Cir. 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Brookhard v. Janis, 384 U.S. 1 (1966) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Celotex Corp. v. Catrett, 477 U.S. 317 (1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Chris Berg, Inc. v. United States, 192 Ct. Cl. 426 F.2d 314 (1970) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28, 29 Cities Service Gas Co. v. United States, 205 Ct. Cl. 500 F.2d 448 (1974) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34 Cubic Applics., Inc. v. United States, 37 Fed. Cl. 345 (1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Durable Metals Products, Inc. v. United States, 27 Fed. Cl. 472 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Elter, S.A., ASBCA No. 52451, 2001-1 B.C.A. ¶ 31,373 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 E. Walters & Co., Inc. v. United States, 217 Ct. Cl. 576 F.2d 362 (1978) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Firestone Tire & Rubber Co. v. United States, 444 F.2d 547 (Ct. Cl. 1971) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Gold Line Refining, Ltd. v. United States, 54 Fed. Cl. 285 (2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Gold Line Refining, Ltd. v. United States, 43 Fed. Cl. 291 (1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5, 8, 17 Hartford Accident & Indemnity Co. v. United States, 130 Ct. Cl. 127 F. Supp. 565 (1955) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Herman & MacLean v. Huddleston, 459 U.S. 375 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

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Integrated Logistics Support Systems International, Inc. v. United States, 47 Fed. Cl. 248 (2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Julius Goldman's Egg City v. United States, 214 Ct. Cl. 556 F.2d 1096 (1977) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 LaBarge Products, Inc. v. West, 46 F.3d 1547 (Fed. Cir. 1995) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28, 31, 32 Ling-Temco-Vought, Inc. v. United States, 201 Ct. Cl. 475 F.2d 630 (1973) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 MAPCO Alaska Petroleum, Inc. v. United States, 27 Fed. Cl. 405 (1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim MAPCO Alaska Petroleum, Inc. v. United States, 30 Fed. Cl. 153 (1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Montana v. United States, 124 F.3d 1269 (Fed. Cir. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 Nautilus Shipping Corp. v. United States, 141 Ct. Cl. 391 (1958) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28, 33 Northern Helex Co. v. United States, 197 Ct. Cl. 118, 455 F.2d 546 (1972)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Pacific Maritime Associate v. United States, 108 F. Supp. 603 (Ct. Cl. 1952) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 PCL Constr. Servs., Inc. v. United States, 41 Fed. Cl. 242 (1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim Pennsylvania Department of Transport v. United States, 226 Ct. Cl. 643 F.2d 758 (1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Peters v. United States, 694 F.2d 687 (Fed. Cir.1982) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 P. Francini & Co. v. United States, 2 Cl. Ct. 7, 11 (1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Pride Cos., LP v. United States, 2000 U.S. Claims LEXIS 213 (unpublished May 10, 2000) . . . . . . . . . . . . . . . . . . . . . . . 3

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Promac, Inc. v. West, 203 F.3d 786 (Fed. Cir. 2000) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Ralph Constr., Inc. v. United States, 4 Cl. Ct. 727, 733 (1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Reservation Ranch v. United States, 39 Fed. Cl. 696 (1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Rough Diamond Co., Inc. v. United States, 173 Ct. Cl. 351 F.2d 636 (1965) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25, 28, 29 Seaboard Lumber Co. v. United States, 903 F.2d 1560 (Fed. Cir. 1980) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Servidone Construction Corp. v. United States, 931 F.2d 860 (Fed. Cir. 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 St. Louis Hay & Co. v. United States, 191 U.S. 159 (1903) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35 Sweats Fashions, Inc. v. Pannill Knitting Co., 833 F.2d 1560 (Fed. Cir. 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Town of Fallsburg v. United States, 22 Cl. Ct. 633 (1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Trinity Services, Inc., GSBCA No. 5825, 81-1 B.C.A. ¶ 15,034 (1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Union Pac. RR. v. United States, 847 F.2d 1567 (Fed. Cir. 1988) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 United States v. Carlo Bianchi & Co., 373 U.S. 709 (1963) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 United States v. General Electric Corp., 727 F.2d 1567 (Fed. Cir. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12, 19 Urban Data System v. United States, 699 F.2d 1147 (Fed. Cir. 1983) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Webster v. Fall, 266 U.S. 507 (1925) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

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Whittaker Electronic Systems v. Dalton, 124 F.3d 1443 (Fed. Cir. 1997) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Will v. Michigan Department of State Police, 491 U.S. 58 (1989) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 DOCKETED CASES Berry v. United States, No. 02-1462 (Fed. Cl. June 12, 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Calcasieu Refining Co. v. United States, No. 02-1219C (Fed. Cl. July 31, 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27, 30 Hermes Consolidated, Inc. v. United States, No. 02-1460C (Fed. Cl. August 7, 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 27, 30 La Gloria Oil and Gas Co. v. United States, No. 02-465C, 2003 U.S. Claims LEXIS 89 (Fed. Cl. Apr. 15, 2003) . . . . . . . 4, 17, 31, 34 Phoenix Petroleum Co. v. United States, No. 97-315C, (Fed. Cl. Apr. 30, 2003) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4, 17, 31 FEDERAL STATUTES 5 U.S.C. § 706(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 10 U.S.C. § 254(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 10 U.S.C. § 2306(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 15 U.S.C. § 772 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 28 U.S.C. § 1295 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 28 U.S.C. 1491(b)(4) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 FEDERAL REGULATIONS DAR 1-1502(b)(ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 DAR 3-304.3(c)(3)c.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 -vii-

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DFARS 216.203-4(d)(v) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 FAR 1.4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 10 FAR 1.401 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 FAR 1.403 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 FAR 1.404 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 FAR 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 FAR 15.804-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 16 FAR 15.804-3(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 FAR 15.804-3(c)(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 FAR 15.804-3(c)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 19 FAR 16.103(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 FAR 16.104 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 FAR 16.203 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 FAR 16.203-1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim FAR 16.203-1(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 FAR 16.203-1(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 FAR 16.203-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 17 FAR 16.203-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim FAR 16.203-4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15, 17 FAR 16.203-4(a)(ii) & (b)(ii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 FAR 16.203-4(a)(2), (b)(2), (c)(2), and (d)(2) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 FAR 16.203-4(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 FAR 16.603-2(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 -viii-

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FAR 27.203-1(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 FAR 35.006(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 FAR 52.216-2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 FAR 52.216-2(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 FAR 52.216-2(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 FAR 52.216-3(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 FAR 52.216-3(b) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 FAR 52.216-3(c) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 FAR 52.216-3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 FAR 52.232-19 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS PLACID HOLDING COMPANY Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) ) )

No. 03-1216C (Judge Wiese)

DEFENDANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT Pursuant to Rule 56(b) of the Court's Rules ("RCFC"), the United States respectfully requests the Court to grant it partial summary judgment and dismiss the complaint.1 In support of this motion, we rely upon the complaint ("Compl."), the following brief, and the accompanying proposed findings of uncontroverted fact ("PFF") and supporting exhibits ("Def. App."), including declarations from the contracting officer, John Walker, and an industry expert, Dr. George Schink. STATEMENT OF THE ISSUES 1. Whether the economic price adjustment ("EPA") clauses contained in one of the five

contracts at issue are legal because they were expressly authorized pursuant to the deviation process set forth in Federal Acquisition Regulation ("FAR") subpart 1.4.

Although plaintiffs present seven discrete legal theories of relief (illegality, misrepresentation, breach of contract, implied-in-fact contract, failure of consideration and frustration of purpose, mistake, and taking), each rests squarely upon the theory that the challenged clauses violate a regulation. See Compl. ¶¶ 32, 37, 47, 54, 62, 71, 85. Thus, although each theory would require proof of elements not addressed in this brief, (e.g., proof of a mistake, misrepresentation, or an implied-in-fact contract), plaintiffs' failure to establish the premise of a regulatory violation forecloses relief upon any of those alternative grounds. We have chosen not to address the remaining theories, because their bases are more obscure and because granting this motion would so dramatically change the scope and posture of the case, that there is no reason to postpone this filing in order for us to investigate the other theories.

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2.

Whether Barrett Refining Corp. v. United States, 242 F.3d 1055 (Fed. Cir. 2001),

compels a finding in favor of Placid. 3. 4. Whether Placid has demonstrated that the clauses at issue do not comply with the FAR. Whether, because it made offers and signed contracts containing these EPA clauses year

after year, without objection or protest, Placid waived any benefits its complaint presumes might have accrued had it contracted for an alternative clause contained in FAR 16.203. 5. Whether, if the clauses are illegal, Placid is entitled to a remedy, inasmuch as it fails to

demonstrate that it suffered any harm as a result of any illegality. 6. Assuming Placid is entitled to recovery in quantum valebant, whether that relief is

correctly quantified in its certified claim. STATEMENT OF THE CASE I. Nature Of The Case This case arises from five fuel supply contracts between Placid and the Defense Energy Support Center ("DESC"). PFF 5.2 Placid asserts that economic price adjustment clauses contained in its contracts violate the FAR and that, therefore it is "entitled to recover the fair market value of the fuel . . . delivered to DESC . . . by way of reformation, quantum valebant, or rescission and restitution." Compl. ¶ 33. II. Other Litigation Concerning The DESC EPA Clauses This action is one of approximately 24 filed since 1989 in this Court by oil companies challenging the legality of DESC's price adjustment clauses. Twenty-one of the cases are now pending. In 1992, one judge of this Court ruled that an EPA clause substantially like those at

Until 1998, DESC was called the Defense Fuel Supply Center ("DFSC"). We use the current name. -2-

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issue here was unauthorized by the FAR. MAPCO Alaska Petroleum, Inc. v. United States, 27 Fed. Cl. 405 (1992). In granting summary judgment for the plaintiff as to liability, the MAPCO Court did not reach the question of remedy. Id. at 407. Ultimately, the parties reached a settlement. MAPCO Alaska Petroleum, Inc. v. United States, 30 Fed. Cl. 153, 153 (1993). In two later cases, the Government declined to contest the alleged illegality, choosing to demonstrate instead, that, regardless of the pricing formula, the supplier received fair market value. Pride Cos., LP v. United States, 2000 U.S. Claims LEXIS 213 (unpublished May 10, 2000) (no appeal); Barrett Ref. Corp. v. United States, 42 Fed. Cl. 128, 129, 134 (1998); see also Barrett Ref. Corp. v. United States, 45 Fed. Cl. 166 (1999), aff'd in part, vacated in part, and remanded, 242 F.3d 1055 (Fed. Cir. 2001). In Barrett, for example, the Government contended that, if one were to assume that (1) the EPA clauses were illegal and (2) recovery should be measured in quantum valebant, then Barrett should not recover, because the contract prices were fair. 42 Fed. Cl. at 128-29 ("The issues before this court . . . are the fair market value of the fuel delivered by plaintiff and whether plaintiff was under-compensated . . . ."). To estimate "fair market value," the Court used a weighted average of prices from the Platts Oilgram Price Report Gulf Coast Spot (Low). Id. at 138; 45 Fed. Cl. at 170. That formula produced a supposed "fair market value" that, for three of the four contracts at issue, exceeded what Barrett was paid, i.e., Barrett was overpaid for those contracts. 45 Fed. Cl. at 170. The litigation then focused upon Government counterclaims for the overpayments. This Court concluded that the Government could not recover, and entered judgment for Barrett, upon the one contract for which the Court's formula yielded an underpayment. Id. at 174.

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In the last year, four judges of this Court held, in response to motions for summary judgment, that the EPA clauses contained in DESC fuel supply contracts similar to the ones at issue here were unauthorized. Gold Line Ref., Ltd. v. United States, 54 Fed. Cl. 285 (2002); La Gloria Oil and Gas Co. v. United States, No. 02-465 C, 2003 U.S. Claims LEXIS 89 (Fed. Cl. Apr. 15, 2003); Phoenix Petroleum Co. v. United States, No. 97-315 C, (Fed. Cl. Apr. 30, 2003), Calcasieu v. United States No. 02-1219C, (Fed. Cl. July 31, 2003), Hermes v. United States, No. 02-1460 C, (Fed. Cl. August 7, 2003). The Courts set for trial the question of what relief would best effectuate the parties' intent to adjust prices in compliance with the FAR. SUMMARY OF MATERIAL FACTS The uncontroverted facts set forth in the accompanying filing are sufficient to establish the Government's right to summary judgment. Generally, the factual statement describes the suitability of the clauses at issue for the highly-generic, bulk-fuel purchases at issue, DESC's long, controversy-free use of the clauses at issue, Placid's lack of objection to the use of, or application of, the clauses, and Placid's continued efforts to secure and perform contracts that used these clauses. I. The Contracts Placid Holding Company is a Delaware corporation with its headquarters in Dallas, Texas. Complaint ¶ 6. While the five contracts at issue in this case were between Placid Refining Company and DESC, Placid Refining Company became Placid Holding Company through a corporate name change. Def. App. 103, fn 1. Placid Holding Company is owned in equal parts by the William Herbert Hunt Trust Estate, the Nelson Bunker Hunt Trust Estate, and the Lamar Hunt Trust Estate. PFF 1. Placid Refining is an affiliate of the Petro-Hunt Group, one of the largest privately held independent energy groups of companies in the world. -4-

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http://www.petrohunt.com/About.htm. Between 1990 and 1995, DESC paid plaintiff in excess of $130 million pursuant to the contracts at issue here, buying more than 214 million gallons of jet fuels known as "JP-5" and "JP-8." PFF 5, 6, 8. The contracts were awarded competitively, pursuant to FAR part 15, and lasted for approximately one year. PFF 5, 7. Placid's contracts contained a DESC-drafted price adjustment clause. PFF 10, 11, 12, 13, 14. The general operation of these "EPA" clauses has been described in MAPCO, 27 Fed. Cl. at 407, and Gold Line Refining, Ltd. v. United States, 43 Fed. Cl. 291, 292 n.4 (1999). In essence, for each petroleum product to be supplied, offerors propose a "base price" per gallon that the agency used for evaluation purposes. PFF 12. Offerors also acknowledged a "reference price," which, since the early 1980s, has been taken from one of several widely-used petroleum price publications. PFF 12-14; Def. App. 24 ("Reference Price Tabulation"). After award, the base price per gallon was periodically adjusted up or down, by the exact number of cents (and fractions of a cent) that the published reference price had risen or fallen since the last price adjustment. PFF 16; Def. App. 24 (part D(c)). Thus, changes in the contract prices were linked to changes in the prices of similar products. See Walker Decl. ¶ ¶ 9,10. DESC began using EPA clauses during the 1973 oil embargo. At that time, the agency allowed offerors to choose between basing price adjustments upon either published prices of refined products, or actual crude oil costs. DESC began using published market prices as escalators exclusively in the early 1980s, mainly because the prior practice made it difficult to compare offers. PFF 11. Further, changes in the prices of particular refined products may not always track with changes in crude oil prices over the short term. PFF 9. Placid's contracts contained EPA clauses providing for price adjustments based upon monthly average sales prices of refined petroleum products, by region, as reported by the -5-

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Department of Energy ("DOE"), Energy Information Administration, in its publication the Petroleum Marketing Monthly ("PMM"). PFF 14. The PMM is compiled from transaction price reports that refiners, including Placid, are required by law to submit to DOE monthly. PFF 14; 15 U.S.C. § 772. Pursuant to changes in the PMM Placid's prices were adjusted monthly. PFF 14, 16. For example, for a 1992 contract, Placid proposed a base price of 62.19 cents per gallon for JP-5, tied to a PMM-based reference price, supplied by DESC, of 62.80 cents per gallon for August 1991. Def. App. 21, 24. Assuming hypothetically that, when Placid delivered fuel under this contract, the reference price was one tenth of a cent (.10 cents) higher than in August 1991 (i.e., 62.90 cents), the contract price would have been adjusted by adding the same one tenth of a cent ( .10 cents) to the base price. (i.e., 62.2900 cents per gallon). Agency records disclose no objection to any version of the EPA clause, or to any of the scores of price adjustments made pursuant to the clauses, throughout the five years in which these contracts were performed. PFF 17. It was not until it submitted its certified claim in June 2001 ­ approximately 11 years after the first contract was awarded, eight years after MAPCO was decided, and six years after the last contract ended ­ that Placid alleged that the EPA clauses were illegal, citing MAPCO. PFF 27. II. The FAR Deviations After the MAPCO decision in 1992, DESC turned almost immediately to appropriate officials for a formal review of its EPA clauses through the FAR deviation process. Def. App. 30­61. Specifically, DESC sought approval to use EPA clauses based on industry or Government price summaries, averages, reports, or indexes of refined petroleum products and natural gas. These . . . include, but are not limited to, figures contained in the -6-

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Petroleum Marketing Monthly, the Oil Price Information Service, Platts Oilgram Price Report, Lundberg Survey, Computer Petroleum Corporation, and Bloomberg Oil Buyer's Guide. Id. at 32. The deviation request acknowledged and attached the MAPCO decision, but explained that DESC disagreed with the Court's rationale. Among other things, DESC stated that [t]he use of product index escalators ensures that the sale will be at the market price, which is a fair and reasonable price. Not only is the Government protected, but the contractor is protected by knowing that its price will always be related to the price it could obtain in the commercial marketplace. Id. The agency obtained several individual deviations during the next two years. In January 1993, February 1993, November 1994, and March 1995, the chief procurement officials of the Defense Logistics Agency ("DLA,") DESC's parent, approved individual deviations for the use of market-price-based EPA clauses. PFF 18-20. Placid Contract DLA600-93-D-0517 was awarded pursuant to the January 1993 deviation under Solicitation DLA600-93-R-0061. PFF 19. In January 1995, DESC sought a permanent class deviation for its EPA clauses. PFF 21. Concurrently, DLA published a proposed regulatory revision in the Federal Register. PFF 22. That notice stated that market-price publications, such as Platts, were widely-used to adjust commercial prices for refined products. Def. App. 33-36. Only one comment was received. It was from a trade association. The group did not object to the use of market prices; it merely wished to ensure that DESC selected the correct market prices. Def. PFF 23. In October 1995, Eleanor Spector, the Director of Defense Procurement ("DDP"), approved DESC's request for a permanent class deviation "to develop and use [EPA] clauses that are based on . . . established prices[,] to encompass industry-wide and geographically based -7-

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market price references . . . ." PFF 25. A confirmatory amendment to the DLA's FAR supplement was published in the Federal Register in 1999. PFF 26. SUMMARY OF THE ARGUMENT This case presents the incredible claim that a sophisticated oil contractor that continued to seek and perform the contracts at issue without complaint for five years and then waited seven more years to file its claims is entitled to a remedy. Remarkably, plaintiff does not even allege that it misunderstood the clauses at issue, or that the clauses did not operate as their plain language suggests. For several reasons, Placid's attempt to secure a post hoc windfall fails as a matter of law and simple fairness. First, even assuming that the EPA clauses at issue were inconsistent with the FAR, that inconsistency was resolved before one of the five contracts at issue were awarded, when, pursuant to the authority contained in FAR subpart 1.4, DESC obtained a "deviation" authorizing the use of the clause. The readiness with which that solicitation and others were approved by FAR authorities underscores the artificiality of this lawsuit. Second, contrary to Placid's assertion, the court of appeals in Barrett, 242 F.3d 1055, did not hold the clauses at issue to be illegal. In fact, the court of appeals has never been presented with the issue of the legality of these clauses. Therefore, there is no precedential decision supporting plaintiff's claim. Third, the clauses at issue were not prohibited by the FAR, were well-calculated to protect Placid and the Government from significant fluctuations in costs, as required by FAR 16.203-3, and are the sort of "established prices" clauses specifically authorized in FAR 16.2031. But, even if the Court were to adopt the Court's reasoning in MAPCO and Gold Line, Placid still could not prevail without demonstrating that the clauses at issue failed to address "one of the -8-

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two mischiefs" described by FAR 16.203-3 (significant fluctuations in labor or material costs or changes in the contractor's established prices). 27 Fed. Cl. at 412. The fact that Placid continued to seek these contracts, performed them for years, and never complained about their operation demonstrates that the clauses more than adequately addressed these "mischiefs." Fourth, even if Placid could meet its burden of proof, it has waived or is estopped from making such claims by its knowing, persistent acceptance of these clauses, and its failure to timely object to their use. Fifth, assuming Placid has not forfeited its claims, Placid does not deserve a remedy, because it has failed to demonstrate resultant harm, i.e., that the illegality caused it to do, or refrain from doing, something to its detriment. Simply put, even if, absent a deviation, these clauses were technically "illegal," Placid fared no differently whether or not a deviation was in place for any given contract. Finally, even if Placid were entitled to a quantum valebant recovery, it has greatly inflated the applicable quantum by ignoring its original proposal prices as the best indicators of "fair market value" at the time of award. ARGUMENT I. The Summary Judgment Standard Summary judgment is warranted when "there is no genuine issue as to any material fact and . . . the moving party is entitled to judgment as a matter of law." RCFC 56(c); accord Montana v. United States, 124 F.3d 1269, 1273 (Fed. Cir. 1999). A factual issue is material if it could affect the outcome of the case in light of the applicable law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A genuine dispute exists only if a reasonable trier of fact could find for the nonmoving party. Id. The movant need not "produce evidence" of the absence of -9-

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factual disputes; it need only "point[] out" that the record does not support the other party's case. Sweats Fashions, Inc. v. Pannill Knitting Co., 833 F.2d 1560, 1563 (Fed. Cir. 1987) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 325 (1986)). II. The EPA Clauses In One Of The Five Contracts At Issue Was Unquestionably Legal Because It Was Properly Approved Through The FAR Deviation Process The linchpin of Placid's complaint is that the EPA clauses impermissibly conflict with FAR 16.203 ­ not a statute. Although we demonstrate below that the clauses are, by their terms, wholly consistent with the FAR and, therefore, lawful and enforceable, the Court need not even reach those arguments with respect to one of the contracts, contract DLA600-93-D-0517. The legality of the EPA clauses used in that contract is independently established by the fact that DESC prudently obtained a so-called "deviation" for it, through the legally authorized channels. Subpart 1.4 of the FAR expressly provides for deviations ­ essentially, exceptions to its provisions that are not expressly required by any other law. These can be "individual" deviations (FAR 1.403) or "class" deviations (FAR 1.404). See also PCL Constr. Servs., Inc. v. United States, 41 Fed. Cl. 242, 252 (1998) (describing deviation process). An individual deviation excludes a single "contracting action" from a FAR requirement. A class deviation affects more than one contracting action, and may be issued upon a permanent basis. FAR 1.404; see Ace Servs., Inc. v. GSA, GSBCA No. 11331, 92-2 BCA 24,943 (noting that agency obtained class deviation for agency-drafted EPA clause for multi-year contracts). Immediately after the MAPCO Court's ruling that DESC's PMM-based EPA clause violated the FAR, the agency approached the appropriate DoD officials for a formal review of its clauses through the deviation process. The EPA clause contained in one of Placid's contracts was covered by an individual deviation expressly authorizing its use.

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As set forth in our proposed findings, DLA obtained individual FAR deviations from its chief contracting authority in January 1993, February 1993, November 1994, and March 1995, to permit the use of the market-based EPA clauses in the solicitations under which Placid was awarded one of its contracts. PFF 19-20, 24. Then, in October 1995, the DDP approved DESC's request for a permanent class deviation to use EPA clauses "based on . . . industry-wide and geographically based market price references," which would include the PMM-based clauses. Def. App. 99-100. In short, the basis for Placid's complaint (a regulatory violation) and its reliance upon MAPCO does not implicate this contract, because the EPA clause it contained was expressly approved for use by the appropriate regulatory authority. III. Barrett Neither Requires Nor Supports A Finding Of Illegality Placid's complaint asserts, among other things, that the court of appeals in Barrett has already decided that "the Government's economic price adjustment clause was illegal." Compl. ¶ 3. There was no such Federal Circuit ruling and the judges of this Court to whom such argument has been made have not held otherwise. All that was at issue in the entire Barrett litigation was quantum. Indeed, this Court noted in the first paragraph of its first Barrett decision that "[t]he parties agree that the clauses are unenforceable . . . . The issues before this court . . . are the fair market value of the fuel . . . and whether plaintiff was under-compensated . . .." 42 Fed. Cl. at 129. The appeal of that decision was brought by the Government, which raised only three issues: (1) whether this Court possessed jurisdiction to hear quantum meruit claims; (2) if so, whether the Court correctly dismissed the Government's counterclaims; and (3) whether the Court used the proper valuation methodology. Barrett, 242 F.3d at 1058-59. - 11 -

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In sustaining this Court's exercise of jurisdiction, the court of appeals noted that its appellate jurisdiction was conferred by 28 U.S.C. § 1295. 242 F.3d at 1058. The appellate court assumed that the EPA clauses were unauthorized ­ as this Court had, id. at 1060 -- but did not rule as such. Even if the appellate court in Barrett had, without saying so, somehow decided the illegality issue that never was argued, that silent "ruling" would not be precedential here. As the Supreme Court has held, stare decisis does not attach to issues that "merely lurk in the record," Webster v. Fall, 266 U.S. 507, 511 (1925), including jurisdictional issues. Will v. Michigan Dept. of State Police, 491 U.S. 58, 63 n.4 (1989) (jurisdiction not decided sub silentio); see also Beacon Oil Co. v. Secretary of Energy, 71 F. 3d 391, 395 (Fed. Cir. 1995) (only legal issues actually decided are precedent); 18-134 Moore's Federal Practice § 134.04 (same) (collecting cases). In sum, Barrett does not provide precedent, or even guidance, regarding liability in this case. IV. Placid Cannot Demonstrate That The DESC EPA Clauses Are Prohibited A. Plaintiff Must Identify An Explicit Prohibition

Apparently recognizing it lacks any ground for increasing its contract price by complaining that it was deceived about, or justifiably failed to comprehend, the meaning or operation of the clauses at issue, Placid asserts that the clauses at issue were "illegal." However, before it can succeed upon any such claim, Placid must demonstrate that the clauses at issue were prohibited, because when no statute or regulation prohibits the use of a clause, the clause is authorized and will be given effect. United States v. General Elec. Corp., 727 F.2d 1567, 1573 (Fed. Cir. 1984) ("GE").

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Firestone Tire & Rubber Co. v. United States, 444 F.2d 547 (Ct. Cl. 1971), for example, concerned an allegation that a price escalator not specifically recognized by a predecessor of FAR 16.203-1 (Armed Services Procurement Regulation ("ASPR") 3.404-3(a)) was illegal. Acknowledging that the ASPR was "law which governs the award and interpretation of contracts as fully as if it were made a part thereof," the Court of Claims nonetheless held that the ASPR's enumeration of "two broad types" provided "useful and valuable guidelines," but did not prevent the parties from agreeing upon a different type of EPA clause. 444 F.2d at 553. See also Peters v. United States, 694 F.2d 687, 692 (Fed. Cir.1982) (regulation providing four grounds for unilateral modification of contract by the Government did not prohibit bilateral modification where none of those grounds was applicable); Trinity Servs., Inc., GSBCA No. 5825, 81-1 BCA ¶ 15,034 (1981) (FAR "Description" clause does not prohibit reasonable contract terms). This Court has followed this principle in analogous situations, in which a contractor has argued that a contracting officer may utilize clauses only when expressly authorized to do so. For example, in Integrated Logistics Support Systems International, Inc. v. United States, 47 Fed. Cl. 248 (2000), aff'd mem., 2002 WL 1291856 (Fed. Cir. 2002), the contractor argued that a contracting officer could not insert a price ceiling in a sole-source letter contract, because the FAR required price ceilings only in contracts awarded pursuant to "price competition." Id. at 259 (quoting FAR 16.603-2(b)). The Court held that simply because the clause was not required in a sole source contract "does not mean it was forbidden . . . ." Id. Similarly, in PCL Construction Services, plaintiff argued that the "subject to availability of funds" clause (FAR 52.232-19) could be used only in the special contracting situations for which it is prescribed. As in the cases cited above, the Court held that because the FAR did not prohibit the use of the clause in other situations, its use was authorized. PCL, 41 Fed. Cl. at 252. - 13 -

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The court of appeals recently applied this principle in American Telephone and Telegraph Co. v. United States, 307 F.3d 1374 (Fed. Cir. 2002) ("AT&T III"). There, the court considered AT&T's allegation that, in selecting a fixed-price contract, the Navy had "violated a variety of procurement regulations and directives that guide a contracting officer's selection of contract type." Id. at 1379. After concluding that regulations that "cautioned" against a fixedprice contract type did not amount to a prohibition, the court concluded that the contracting officer was free to select that type of contract. Id. at 1380. In sum, neither the absence of authority to use a clause nor nonmandatory guidance concerning the clause can be relied upon to urge prohibition of a clause. We expect that Placid will argue that FAR 16.203-1 and FAR 16.203-3 prohibit DESC's EPA clauses. As demonstrated below, the contrary is true. B. FAR 16.203-1 Does Not Prohibit The EPA Clauses

FAR 16.203-1 provides as follows: A fixed-price contract with economic price adjustment provides for upward and downward revision of the stated contract price upon the occurrence of specified contingencies. Economic price adjustments are of three general types: (a) Adjustments based on established prices. These price adjustments are based on increases or decreases from an agreedupon level in published or otherwise established prices of specific items or the contract end items. (b) Adjustments based on actual costs of labor or material. These price adjustments are based on increases or decreases in specified costs of labor or material that the contractor actually experiences during contract performance. (c) Adjustments based on cost indexes of labor or material. These price adjustments are based on increases or decreases in labor or material cost standards or indexes that are specifically identified in the contract. - 14 -

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Nothing contained in section 16.203-1 purports to be proscriptive. The sentence, "Economic price adjustments are of three general types," is a simple declarative statement. It does not state that contracting officers "shall use one of the three general types" or that the three named are "the only acceptable types." Had the regulation intended to restrict EPA provisions to the three described, it would have included language of that sort. Cf. FAR 27.203-1(b) (prohibiting use of patent indemnity clause in certain situations). C. The Clauses At Issue Are "Established Price" Clauses Within FAR 16.203-1(a)

FAR Subsection 16.203-1(a) authorizes contract prices to be adjusted upon the basis of changes in "published or otherwise established prices." It does not define those terms. However, FAR Subsection 16.203-4 ("Contract Clauses") sets forth the circumstances in which the contracting officer may use either a FAR or agency-prescribed EPA clause based on "published or otherwise established prices". That Subsection expressly authorizes the use of such provisions where the requirement is for supplies that have an "established catalog or market price." FAR 16.203-4(a)(ii) & (b)(ii). Since January 1997, FAR 16.203-4 has not explicitly defined the terms "catalog or market price."3 However, its predecessor made clear that the terms "established catalog or market price" referred to the definitions found in FAR 15.804-3. The predecessor stated that, before using a "published or otherwise established price" EPA clause, the contracting officer must determine that "the requirement is for . . . supplies that have an established catalog or market price verified using the criteria in FAR 15.804-3" (emphasis added). FAR 15.804-3 (c), in turn, defined "established catalog prices" as "prices (including discount prices) recorded in a

3

This provision was deleted from the FAR effective January 2, 1997. - 15 -

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catalog, price list, schedule, or other verifiable and established record that (A) are regularly maintained by the manufacturer or vendor; and (B) are published or otherwise available for customer inspection." FAR 15.804-3(c)(1) (1995). It defined "established market prices" as "current prices that (i) are established in the course of ordinary and usual trade between buyers and sellers free to bargain and (ii) can be substantiated by data from sources independent of the manufacturer or vendor." Id. § 15.804-3(c)(2) (emphasis added). Section 16.203-2 provides strong evidence that the definition of established market prices in section 15.804-3(c)(2) refers to prices other than the contractor's or offeror's prices. Section 16.203-2 provided: "[p]rice adjustments based on established prices should normally be restricted to industry-wide contingencies." This reference to industry-wide contingencies demonstrates that market prices are not limited to the contractor's prices. Thus, if the contractor's established prices rise, but prices in the rest of the industry do not rise, then the EPA clause should not provide for an upward adjustment in the contract prices. If, however, the contractor's prices rise along with those of industry generally, then the EPA clause should provide for an upward adjustment in contract prices as indicated by the increase in industry market prices. The escalators used in the clauses at issue track market prices, and clearly fit within the definition of "established market prices." The PMM, for example, is based upon sales data from a large number of refiners and sellers of petroleum products and reports averages of the actual prices paid for various products in different states and regions of the country. PFF 14. Because the prices are established in actual sales between a number of sellers and buyers, they satisfy the FAR 15.804-3 requirement that market prices be established in the ordinary course of business between buyers and sellers free to bargain. Thus, a contracting officer encountering FAR - 16 -

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16.203-1 and 16.203-4 has no reason to suppose that "established prices" must be a "contractor's established prices." The MAPCO, Gold Line, La Gloria, and Phoenix Courts disagreed with this conclusion, although the MAPCO Court was not presented with the foregoing argument. Those Courts concluded that FAR 16.203-1's reference to adjustments by "established prices" referred to contractor established prices and, therefore, did not include the market-price adjustment used in Clause B19.33. Gold Line, 54 Fed. Cl. at 295. The bases for this conclusion, as summarized in Gold Line, were : (1) FAR 16.203-3 specifically refers only to "contractor's established prices," and appears in the same "section" as 16.203-1 (which uses the term "established prices"); (2) a neighboring provision, FAR 16.203-2, refers to "contractor established prices;" and (3) the FAR's standard EPA clauses (FAR 52.216-2 and FAR 52.216-3) "base adjustments to contact price on fluctuations in the contractor's established prices," and used the terms "established prices" and "contractor's established prices" interchangeably. 54 Fed. Cl. at 294-95. The MAPCO Court also relied upon its observation that FAR 16.203-1 was intended to replicate a Defense Acquisition Regulation ("DAR") EPA provision, without substantive change. 27 Fed. Cl. at 409. The significance of that, according to the Court, was that, in the DAR, the predecessor of FAR 16.203-3 (which refers to contractor established prices) appeared before the predecessor of FAR 16.203-1 (which refers only to "established prices."). Thus, the Court concluded, the word contractor "could . . . be omitted" from FAR 16.203-1 and it still could refer to contractor prices. Id. These arguments do not establish that the term "established prices," as used in FAR 16.203-1, refers to "contractor's established prices," because the arguments simply beg the question. Thus, while it is true that the word contractor might be inferred in FAR 16.203-1, - 17 -

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based upon its use in adjoining sections, absent a textual or policy reason for doing so, that is not a necessary or even logical inference. We understand that drafters might reasonably, and without risking ambiguity, shorten a term that is repeated in very close proximity to its original mention, such as within the same sentence, or, when used repeatedly within the same paragraph. In fact, the drafters did that in FAR 52.216-2(b), 52.216-2(c), 52.216-3(a), 52.216-3(b), and 52.216-3(c) where, as the MAPCO Court notes, the terms "contractor established prices" and "established prices" were used interchangeably. Indeed, that clause is a standard clause for the use of contractor established prices, and its context makes clear that every use of the term "established prices" does, indeed, refer to the contractor's established prices. However, users should not be required to assume that a term that appears in one section of the FAR (FAR 16.203-3), was transported to a completely different section of the FAR (FAR 16.203-1) via an ersatz shorthand that is never explicitly defined. It is doubly unreasonable to expect readers to make that assumption when the phrase to be imported does not occur until later in the regulation,. and when the alleged shorthand (established prices) has a clearly separate meaning from its allegedly intended reference (contractor's established prices). In fact, the argument necessarily assumes the drafters were sloppy. This argument also applies to the DAR predecessor provisions. Their simple co-location and order within the DAR alone do not indicate that both provisions were intended to refer to contractor established prices. Thus, whether there was a substantive change from the DAR to the FAR is immaterial, unless one assumes that FAR 16.203-1's predecessor was intended to refer to "contractor established prices." The MAPCO Court also found support in the dictionary for the conclusion that "established prices" meant "contractor established prices," reasoning that the word "established" - 18 -

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(defined as, among others things, "stable" and "firm") implies that "a purchaser would have to have assurance that he could go to a particular vendor and insist on the advertised price." 27 Fed. Cl. at 410-11. That ignores, however, the fact that established market prices for price adjustment purposes must be more than mere advertised prices. What makes a price established is that sales occurred at the particular price. An advertised price at which no sales take place should not be used as an adjustment mechanism for a Government contract price. A contractor's past sales prices are simply one part of the overall market constituting established market prices. The Court in MAPCO also found that the PMM did not reflect "established prices" because it is "an amalgamation of the previous month's petroleum sales data [and] not, as FAR 15.804-3(c)(2) contemplates, determinative of any particular corporation's current prices." 27 Fed. Cl. at 410. The Court appears to have misunderstood the EPA clauses. Although each PMM reports a previous month's sales, price adjustments were made based upon the PMM prices in effect "during the month of delivery." Def. App. 24 (pt. D(a)). Thus, current prices always were used. Furthermore, nowhere does the FAR state that any "particular [contractor's] current price" better reflects "established prices" than an "amalgamation" of prices. In Gold Line, 54 Fed. Cl. 285, the Court placed special emphasis upon what it viewed as the "mandatory" nature of FAR 16.203-1. The Court's reasoning was based upon its assumption that contracting officers are prohibited from using clauses unless the FAR permits, and that FAR 16.203-1 is the full extent of any such permission. 54 Fed. Cl. at 292-94. Yet, we know of no authority that requires a duly appointed contracting officer, acting within his warrant of authority, first to seek permission to use a clause if it is not contained in the FAR. To the contrary, absent a prohibition, "a contracting officer may use a clause not specified in the applicable procurement regulation." GE, 727 F.2d at 1573; see also AT&T III, 307 F.3d at 1379. - 19 -

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The Gold Line decision also relied upon FAR 1.401 and an interpretive rule for support of its conclusion that only a "described" clause is permitted, 54 Fed. Cl. at 290-91, but, respectfully, these references beg the question. The Court stated that FAR 1.401 "expressly precludes the use of a contract procedure or clause that is inconsistent with the FAR," and that the applicable rule of statutory construction provided that "if a statute provides that a thing shall be done a certain way, there is a rebuttable presumption . . . [of] an implied prohibition against doing that thing in any other way." Id. (emphasis added).4 We agree, but the question remains: Where is the "express" preclusion, prescription, or prohibition? D. FAR 16.203-3 Does Not Prohibit The DESC Clauses

FAR 16.203-3 restricts the use of contracts with EPA clauses to those instances where the contracting officer determines that it is necessary either to protect the contractor and the Government against significant fluctuations in labor or material costs or to provide for contract price adjustment in the event of changes in the contractor's established prices. In MAPCO, the Court relied upon this provision to find an EPA clause illegal. The Court reasoned that, a "legal" EPA clause must address one of the "two mischiefs" described in Without saying so, the Court was applying the rule of expressio unius est exclusio alterius, but such rules "long have been subordinated to the doctrine that courts will construe the details of an act in conformity with its dominating general purpose." Herman & MacLean v. Huddleston, 459 U.S. 375, 387 (1983). Thus, absent clear language establishing "purpose," [t]he application of the maxim . . . suffers form the usual weakness of that canon. It begs the question. Why should we infer from the list of ways to do something that there are no others? The legislature does not tie up every knot in every statutory subsection. A list of four ways may imply only that Congress has yet to consider whether there should be others. The history and structure of a statute may show that a list is exhaustive . . . but also may show that Congress has not grappled with the problem . . . . In re American Res. Corp., 840 F.2d 487, 492 (7th Cir. 1987). - 20 4

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16.203-3, and the EPA clause there did not. 27 Fed. Cl. at 412. But, even if MAPCO was correctly decided, Placid cannot turn to FAR 16.203-3 to supply the necessary prohibition without demonstrating that, in this case, the clauses at issue failed to "protect the contractor and the Government against significant fluctuations in labor or material costs or to provide for contract price adjustments in the event of changes in the contractor's established prices." Placid has not even alleged as much ­ preferring to rest upon its conclusory assertion that the clauses are "illegal." Placid's failure to allege that the EPA clauses failed in their purpose comes as no surprise, inasmuch as the clauses at issue tracked market fluctuations penny for penny, and Placid and many other contractors willingly accepted them year after year. Should Placid now attempt to supply the necessary proof ­ as it must in response to a motion for summary judgment ­ the Court should note that FAR 16.203-3 concerns only protection from "significant" cost fluctuations. Thus, it does not require that every cost fluctuation be passed along to the Government. Indeed, it is unlikely that a proper escalator would cover every increase in a particular contractor's costs. The approximate nature of cost indexes vis-à-vis any particular contractor was acknowledged in the court of appeals' analysis of an EPA clause in Beta Systems, Inc. v. United States, 838 F.2d 1179 (Fed Cir. 1988). At issue was whether the EPA clause satisfied a DAR provision designed to establish indexes that would "accommodate inflationary/deflationary changes in the costs of labor or materials." Id. at 1185. The regulation sets forth comprehensive guidance for the construction of such an index: An index should be structured to encompass a large sample of relevant items yet bear a logical relationship to the type of contract costs being measured. The basis of the index should not be so large and diverse that it is significantly affected by fluctuations not relevant to the contract performance, yet must be significantly - 21 -

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broad so as to assure the minimal effect of any single company, including the anticipated contractors. Id. (quoting DAR 3-304.3(c)(3)c.5 (1981) ­ now DFARS 216.203-4(d)(v)).