Sufi Network Services, Inc. v. United States

United States Court of Appeals

for the Federal Circuit

______________________

SUFI NETWORK SERVICES, INC.,

Plaintiff-Cross-Appellant,

v.

UNITED STATES,

Defendant-Appellant.

______________________

2013-5039, -5040

______________________

Appeals from the United States Court of Federal

Claims in No. 11-CV-0804, Judge Thomas C. Wheeler.

______________________

Decided: May 29, 2014

______________________

FREDERICK W. CLAYBROOK, JR., Crowell & Moring

LLP, of Washington, DC, argued for plaintiff-cross-

appellant. With him on the brief was BRIAN T.

MCLAUGHLIN.

KIRK T. MANHARDT, Assistant Director, Commercial

Litigation Branch, Civil Division, United States Depart-

ment of Justice, of Washington, DC, argued for defendant-

appellant. With him on the brief were STUART F. DELERY,

Acting Assistant Attorney General, JEANNE E. DAVIDSON,

Director, and DOUGLAS T. HOFFMAN, Trial Attorney.

______________________

2 SUFI NETWORK SERVICES, INC. v. US

Before NEWMAN, LOURIE, and TARANTO, Circuit Judges.

TARANTO, Circuit Judge.

The United States appeals from a decision of the

United States Court of Federal Claims that awarded

$118.76 million in damages, plus interest, to SUFI Net-

work Services, Inc., for breach of contract. SUFI Network

Servs., Inc. v. United States, 108 Fed. Cl. 287, 295 (2012).

SUFI cross-appeals, seeking additional damages. We

affirm in part, reverse in part, vacate in part, and re-

mand.

BACKGROUND

On April 26, 1996, the Air Force Non-Appropriated

Funds Purchasing Office (“Air Force”) entered into a

contract with SUFI, under which SUFI would install and

operate telephone systems in guest lodgings on certain

Air Force bases in Europe. SUFI agreed to furnish and

install the necessary equipment, including cables and

switches, and to operate the systems once installed, at no

cost to the government; in exchange, the Air Force agreed

that “a SUFI telephone system (SUFI network) was to be

the exclusive method available to a guest for placing

telephone calls at the lodging.” Br. for Appellant U.S. at

4. Exclusivity was central to the bargain because SUFI’s

sole compensation for its up-front investments and opera-

tional costs was a portion of the revenues generated by

local and long-distance telephone charges paid by guests

when making calls to off-base locations. The contract

originally had a ten-year term but in March 2000 was

extended to fifteen years.

Soon after SUFI began offering service in January

1997, disputes arose about the Air Force’s role in not

protecting SUFI, under the exclusivity guarantee, against

the revenue-limiting diversion of calls from SUFI’s sys-

tems. It is not disputed here that the contract permitted

SUFI to block access to other carriers’ networks (for

SUFI NETWORK SERVICES, INC. v. US 3

instance, by blocking access to calling cards) and required

the Air Force to remove or disable any preexisting De-

fense Switched Network (DSN) telephone lines in the

lodging hallways and lobbies. Nevertheless, DSN phones

remained in place after January 1997, and lodging guests

began engaging in “toll skipping,” often with the assis-

tance of Air Force personnel: guests avoided SUFI’s

charges by using DSN phones or, when using in-room

SUFI phones, by engaging a DSN operator (or other Air

Force agent) to patch a call through to a long-distance

destination or to the toll-free number of another long-

distance carrier. Moreover, although SUFI and the Air

Force agreed to permit soldiers on temporary duty to be

patched through to long-distance numbers for periodic

“morale” calls of limited duration and frequency, call

records showed that, with Air Force assistance, guests

often exceeded the limits, placing multiple consecutive

calls or lengthy individual calls.

After the Air Force declined to implement adequate

controls to curb DSN and patched-call abuse, SUFI

blocked guest-room access to the DSN operator numbers

but permitted morale calls to be placed from designated

lobby phones, the latter under Air Force monitoring

through sign-in logs. But Air Force personnel failed to

require guests to sign the logs and, in addition, gave

guests new access numbers to reach the DSN operator,

thereby helping them to circumvent SUFI’s charges.

Guest use of calling cards also presented problems

under the contract. On June 9, 1999, the parties agreed

to modify the contract with respect to charges for toll-free

calls. Modification No. 5 states:

TOLL FREE CALLS: $1.00 CONNECTION FEE.

(SOME INTERNATIONAL “TOLL FREE” CALLS

MAY BE SUBJECT TO BILLING, FOR

EXAMPLE, INTERNATIONAL TOLL FREE

CALLS TO OTHER COUNTRIES, WHERE A

4 SUFI NETWORK SERVICES, INC. v. US

HOST NATION PASSES ALONG A CHARGE,

WILL BE SUBJECT TO CONTRACTOR’S

STANDARD PER MINUTE CHARGE FOR THAT

COUNTRY.)

See SUFI Network Servs., ASBCA No. 54503, 04-1 BCA

¶ 32,606 at 161,365 (Apr. 22, 2004) (SUFI I) (quoting

provision). On November 5, 2003, the Air Force cited

Modification No. 5 as authority to “open toll free calls, to

include calling cards at the $1.00 connection fee,” and

ordered SUFI to “remove all restrictions on toll free

calling.” Id. SUFI was forced to comply with the demand

for about six months in 2004.

In response, SUFI challenged the Air Force’s interpre-

tation of Modification No. 5 and asked the contracting

officer to decide “whether Modification 5 (or any other

part of the Contract) requires SUFI to remove restrictions

on toll-free calls accessing other long-distance carriers.”

Id. SUFI also asked the officer to decide whether the Air

Force’s directive that SUFI remove such restrictions

would constitute a “material breach[] of contract that

permit[s] SUFI to cancel the Contract and stop work.” Id.

The contracting officer issued a final decision denying

SUFI’s claims on January 15, 2004. On SUFI’s appeal

pursuant to the contract’s “disputes” clause, however, the

Armed Services Board of Contract Appeals (Board) con-

cluded otherwise. The Board held that SUFI could not be

required to remove restrictions on toll-free calls, that the

government breached the contract in its order regarding

toll-free calls, that the breach was material, and that

SUFI could therefore stop performance of the contract.

SUFI Network Servs., ASBCA No. 54503, 04-2 BCA ¶

32,714 at 161,868-69 (Aug. 17, 2004) (SUFI II); SUFI

Network Servs., ASBCA No. 54503, 04-2 BCA ¶ 32,788 at

162,193-95 (Nov. 1, 2004) (SUFI III).

On August 25, 2004, SUFI notified the contracting of-

ficer that it intended to stop work on the contract, but

SUFI NETWORK SERVICES, INC. v. US 5

would negotiate with the Air Force over transitional

measures to minimize inconvenience to guests. Ultimate-

ly, SUFI, while maintaining its claims for breach of

contract, sold the telephone system to the Air Force for

$2.275 million. The Air Force took over operation of the

telephone system on June 1, 2005.

One month later, SUFI submitted twenty-eight mone-

tary claims, totaling $130.3 million, to the contracting

officer. The officer denied all of the claims, except that he

allowed SUFI $132,922 on its calling-card claim. SUFI

appealed to the Board, which granted only partial relief to

SUFI, on twenty-one of the claims, in a series of decisions

between 2006 and 2010. The Board’s final award was

approximately $7.4 million in damages, plus interest.

SUFI challenged the Board’s decisions in the Court of

Federal Claims by filing a contract action under the

Tucker Act, 28 U.S.C. § 1491. The parties do not dispute

that the Tucker Act covers SUFI’s claims. Nor do they

dispute that judicial review of SUFI’s claims under the

Tucker Act is governed by the Wunderlich Act, 41 U.S.C.

§§ 321-322 (2006) (now repealed). See Vista Scientific

Corp. v. United States, 808 F.2d 50, 50 (Fed. Cir. 1986).

SUFI did not challenge the Board’s ruling on some

claims, which accounted for approximately $2.8 million in

damages, plus interest. That amount became final. SUFI

challenged the Board’s ruling regarding a number of

claims, moving for judgment on the administrative record:

Count I (calling cards); Count III (hallway and lobby DSN

phones); Count V (other operator numbers and patching);

Count VI (early DSN abuse); Count VII (Delta Squadron);

Count VIII (Prime Knight lodgings); Count IX (Kapaun

line charge); Count XI (German troops housing); Count

XV (general lack of cooperation); Count XVI (post-

termination lost profits); Count XVIII (SIMS/LTS inter-

faces); and Count XXIII (change of Air Force switches).

6 SUFI NETWORK SERVICES, INC. v. US

On November 8, 2012, the Court of Federal Claims

granted SUFI’s motion. The court awarded SUFI damag-

es of $118,764,081.34, plus interest, for the claims that

were appealed—mostly representing lost profits both

before termination of the contract and after termination.

SUFI Network Servs., 108 Fed. Cl. at 321-22. That award

was more than $114 million greater than the Board

award on the same claims. Id.

The United States appeals the increased award. It

accepts that it is liable for breach of contract, appealing

only with regard to the amount of damages. SUFI cross-

appeals, seeking additional damages. We have jurisdic-

tion under 28 U.S.C. § 1295(a)(3).

DISCUSSION

We review the Board decision in this case under the

Wunderlich Act, previously codified at 41 U.S.C. §§ 321-

322. Although the Act has been repealed, the repeal does

not affect this case—involving judicial review of an ad-

ministrative decision in a government-contract case that

the parties agree is within the Tucker Act and outside the

Contract Disputes Act—because SUFI initiated these

proceedings at the Board before the repeal. Pub. L. No.

111-350, 124 Stat. 3677, 3855, 3859 (Jan. 4, 2011).

Under the Wunderlich Act, the Board’s “decision shall

be final and conclusive unless the same is fra[u]dulent or

capricious or arbitrary or so grossly erroneous as neces-

sarily to imply bad faith, or is not supported by substan-

tial evidence,” 41 U.S.C. § 321 (2006), and “[n]o

Government contract shall contain a provision making

final on a question of law the decision of any administra-

tive official, representative, or board,” id. § 322. Although

cases subject to the Act involve contract disputes, the

judicial proceeding is one of judicial review of agency

action. As relevant here, in applying the express statuto-

ry standard, we, like the Court of Federal Claims, decide

legal issues de novo, review the Board’s factual findings

SUFI NETWORK SERVICES, INC. v. US 7

for lack of substantial evidence, and ensure that the

Board’s reasoning was not “capricious or arbitrary.” See

Granite Const. Co. v. United States, 962 F.2d 998, 1001

(Fed. Cir. 1992).

The corollaries for issues that involve factual findings

and record evidence are familiar. In United States v.

Carlo Bianchi & Co., 373 U.S. 709, 716-17 (1963), the

Supreme Court held that a court reviewing a Wunderlich

Act case is limited to the administrative record and may

not take new evidence. Shortly thereafter, the Court

clarified that, “[w]hen the Board fails to reach and decide

an issue because it disposes of the appeal on another

ground,” the reviewing court, if it later rejects the relied-

on ground, should generally order a remand for the Board

to address the issue it had not reached before judicial

review. United States v. Anthony Grace & Sons, Inc., 384

U.S. 424, 428-430 (1966); see Wilner v. United States, 24

F.3d 1397, 1408 (Fed. Cir. 1994) (Bennett, J., dissenting)

(stating that Bianchi “required the Court of Claims to

remand cases back to the agency board whenever addi-

tional findings of fact became necessary”). On the other

hand, a remand to the Board is sometimes unnecessary—

not only where the dispute turns only on legal issues, but

even where a factual dispute exists if no further record

development is appropriate and the fact is one “as to

which the evidence is undisputed” or “is of such a nature

that as a matter of law the Board could have made only

one finding of fact.” Maxwell Dynamometer Co. v. United

States, 386 F.2d 855, 870 (Ct. Cl. 1967) (no remand neces-

sary); see Collins Int’l Serv. Co. v. United States, 744 F.2d

812, 816 (Fed. Cir. 1984) (“[T]he Claims Court may make

findings of fact in this type of case [under the Wunderlich

Act] where the evidence on the record is uncontroverted or

undisputed.”)

We conclude that several matters require additional

factual findings. None of those matters fall within excep-

tions to the general rule of remand to the Board on factual

8 SUFI NETWORK SERVICES, INC. v. US

matters. Nor is this a case in which we conclude that “the

Board will not promptly and fairly deal with the merits of

the undecided issue.” Anthony Grace, 384 U.S. at 430.

Thus, any new factual findings that are required should

be made by the Board.

Burden of Proof

Before discussing the substance of particular damages

issues, we address whether the Board properly allocated

the burden of proof regarding certain issues that arose in

assessing lost-profits damages. As the non-breaching

party seeking damages for breach in the form of lost

profits, SUFI must prove, by a preponderance of the

evidence, that

(1) the loss [it claims] was the proximate result of

the breach; (2) the loss of profits caused by the

breach was within the contemplation of the par-

ties because the loss was foreseeable or because

the defaulting party had knowledge of special cir-

cumstances at the time of contracting; and (3) a

sufficient basis exists for estimating the amount

of lost profits with reasonable certainty.

Energy Capital Corp. v. United States, 302 F.3d 1314,

1325 (Fed. Cir. 2002); see Cal. Fed. Bank, FSB v. United

States, 245 F.3d 1342, 1349 (Fed. Cir. 2001). Where a

defendant argues that, even had there been no breach,

there would have been some impediment to the plaintiff’s

ability to make a profit, the defendant must point out the

alleged impediment, but “[t]he burden of proof on the

issue of causation in a lost-profits case [remains] on the

plaintiff without regard to the nature of the impediment

that the plaintiff would have had to overcome in the

nonbreach world to make a profit.” Nycal Offshore Dev.

Corp. v. United States, 743 F.3d 837, 844 (Fed. Cir. 2014).

That principle is not altered by the accommodation of

reasonable imprecision in the plaintiff’s quantification of

damages that would compensate for proven loss, see id. at

SUFI NETWORK SERVICES, INC. v. US 9

845, or by rules about offsets of retained benefits in cases

involving reliance-interest damages (unlike the lost-

profits damages sought here), Westfed Holdings, Inc. v.

United States, 407 F.3d 1352, 1370 (Fed. Cir. 2005);

Caroline Hunt Trust Estate v. United States, 470 F.3d

1044, 1052 (Fed. Cir. 2006).

Here, SUFI claims as lost profits an amount that rep-

resented what it would have earned if (subject to certain

qualifications) every long-distance call that was in fact

placed on alternative networks (in the actual, breach

world) had instead been placed on SUFI’s network and

gone on for just as long (in the hypothetical, nonbreach

world). The government claims that, due to SUFI’s high

per-minute calling rates, guests would have placed fewer

and shorter calls on SUFI’s network had they been unable

to use the alternative networks. The Court of Federal

Claims mischaracterized this dispute as raising an issue

on which the government bore the burden of proof. SUFI

Network Servs., 108 Fed. Cl. at 299. Once the government

identified alleged impediments to the claimed amount of

lost profits, SUFI had the burden to show by a preponder-

ance of the evidence that its high rates would not have

prevented it from earning the profits it claims—and to

quantify the amount by a reasonably certain estimate.

Although the Board did not err in placing the burden

on SUFI to prove its damages, in some instances, as we

will discuss, the Board erred because it rejected SUFI’s

calculations in favor of ones that were not supported by

substantial evidence. In other instances, SUFI has not

demonstrated that the Board’s decision lacked substantial

evidentiary support.

Count I (Calling Cards)

SUFI claimed close to $1 million in lost-profits dam-

ages from the government’s breach in requiring SUFI to

allow guests to use calling cards from February to August

2004—which, SUFI alleged, diminished the total number

10 SUFI NETWORK SERVICES, INC. v. US

of call minutes guests paid SUFI for. SUFI Network

Servs., ASBCA No. 55306, 09-1 BCA ¶ 34,018 at 168,275-

76 (Nov. 21, 2008) (SUFI VIII). SUFI’s methodology was

to multiply the calling-card usage minutes by SUFI’s

weighted-average long-distance rate, and then to subtract

costs it would have incurred had the calls been made on

its network and revenues it actually received from the

calling-card minutes. Id. The Board declined to adopt

this methodology, which counted all calling-card minutes

as minutes that would have been spent on SUFI’s net-

work without this breach. Id. at 168,276. Instead, the

Board compared SUFI’s monthly revenues before Febru-

ary 2004 (i.e., before SUFI lost revenues due to the call-

ing-card breach) with revenues during the February-

August period of calling-card use and a post-August

period of transition back to calling-card blocking. Id. The

Board’s method resulted in $188,637.80 in lost revenues,

which it awarded as damages (along with a small addi-

tional amount that is not material here). Id.

Despite the large gap between SUFI’s claimed losses

and what the Board calculated, SUFI has failed to show

that the Board’s methodology was not supported by

substantial evidence. SUFI scarcely discusses this matter

in its brief, relying entirely on the criticism of the Board

by the Court of Federal Claims, which reasoned that the

records of calls placed via calling cards were the “best

evidence” of SUFI’s losses and that, because “SUFI was

experiencing a multitude of other breaches simultaneous-

ly,” it would be “impossible to isolate the calling card

breach using the Board’s methodology.” SUFI Network

Servs., 108 Fed. Cl. at 310. But the Court of Federal

Claims did not cite any evidence to indicate that the

losses due to other breaches so changed during the com-

parison periods that it was unreasonable to use the com-

parison to estimate the losses attributable to calling-card

usage alone. Under a substantial-evidence standard,

SUFI has shown no reason that this kind of event study

SUFI NETWORK SERVICES, INC. v. US 11

was impermissible, especially when coupled with plausi-

ble questions, given the price differences, about whether

the calls guests placed using calling cards are the best

evidence of the revenues SUFI would have earned in the

nonbreach world.

Because we cannot agree that the Board’s methodolo-

gy was unsupported by substantial evidence or was oth-

erwise not in accordance with the law, its damages

calculation with respect to lost revenues attributable to

calling-card usage should stand. Accordingly, we reverse

the Court of Federal Claims on this issue.

Count III (Hallway and Lobby DSN Phones)

In calculating lost profits resulting from the Air

Force’s failure to remove hallway and lobby DSN phones,

which siphoned calls from room phones on SUFI’s net-

work, SUFI relied on the use of “surrogate” phone records

to estimate how many calls were placed on those improp-

erly retained phones. Because of the government’s loss of

call records for most of the DSN phones in question, SUFI

had records only of the dates particular hallway/lobby

DSN phones were in service, not of the actual calls placed

on most of the phones. SUFI Network Servs., 108 Fed. Cl.

at 305; SUFI VIII at 168,242. Given the limited data

available, SUFI turned to certain phones for which com-

plete call records were available—namely, certain lobby

phones that it operated, which had worldwide direct-dial

DSN access. SUFI VIII at 168,238. SUFI then chose the

“surrogate” phone with the lowest monthly usage (in

order to be conservative) and multiplied that monthly

usage by the number of months each hallway/lobby DSN

phone was in service (when it should not have been). Id.

at 168,238-39. SUFI used that calculation to estimate the

profits it would have earned had the calls placed from the

hallway/lobby DSN phones instead been placed from

SUFI’s in-room phones (and lasted as long). SUFI ex-

cluded only an amount estimated to reflect local calls on

12 SUFI NETWORK SERVICES, INC. v. US

those DSN phones, for which SUFI would not have levied

a charge even if placed from in-room phones (because

SUFI provided local DSN access for free). SUFI Network

Servs., ASBCA No. 55306, 09-2 BCA ¶ 34,201 at 169,089

(July 15, 2009) (SUFI IX).

Although SUFI’s methodology resulted in $53 million

in alleged losses, the Board found only $1.16 million in

losses. Id. The Board’s approach seemingly rested on two

premises. One was that SUFI’s “surrogate” phones “were

not hallway/lobby DSN phones and their call records were

not probative of the claimed lost revenue from non-official

calls on the hallway/lobby DSN phones.” Id. The other—

which is not entirely explicit or clear in its foundation—

was that, under its contract, SUFI could not (and there-

fore would not) have charged for guests’ in-room dialing of

the Air Force operator to obtain DSN access to make any

“official” call, even a long-distance (as opposed to local)

call. See id. at 169,088-89. On that apparent premise,

any “official”-call minutes spent on the (improper) hall-

way/lobby DSN phones did not count toward calculating

profits SUFI would have earned in the absence of those

phones, because SUFI could not have charged for those

minutes if the caller had spent them in calls made from

the in-room SUFI phones.

Instead of adopting SUFI’s methodology, the Board

reviewed 173,000 of the 4,274,690 minutes for the hall-

way/lobby DSN phones for which call records were availa-

ble, and “determined that 13% of those minutes were

during other than normal duty hours at the locations

called, and therefore more likely than not to have been

non-official calls.” Id. at 169,089. Extrapolating from this

percentage, the Board ultimately tallied about 1.7 million

minutes as “a fair and reasonable approximation of [the

number of minutes of] the non-official calls that in the

absence of the hallway/lobby DSN phones would have

been placed over the SUFI phones.” Id. The Board mul-

tiplied that number of minutes by SUFI’s weighted-

SUFI NETWORK SERVICES, INC. v. US 13

average per-minute profit of about $0.67, and made

certain adjustments, to arrive at its $1.16 million damag-

es award for Count III.

We agree with SUFI and the Court of Federal Claims

that the Board erred in determining SUFI’s lost profits for

Count III. First, the Board failed to consider whether an

adverse inference should be drawn against the govern-

ment on the issue of the missing call records, as the Air

Force failed to maintain the records even though it was on

notice of this potential contract dispute. See Bigelow v.

RKO Radio Pictures, Inc., 327 U.S. 251, 265 (1946) (“The

most elementary conceptions of justice and public policy

require that the wrongdoer shall bear the risk of the

uncertainty which his own wrong has created. . . . [In a

variety of cases], the wrongdoer may not object to the

plaintiff's reasonable estimate . . . because not based on

more accurate data which the wrongdoer’s misconduct has

rendered unavailable.”).

Moreover, the Board did not cite to substantial evi-

dence to justify its own methodology for Count III (unlike

for Count I). Even without regard to questions about the

premise that SUFI could not charge for any “official” in-

room DSN call, whether local or (operator-assisted) long-

distance, the Board did not set forth substantial evidence

to support, or reasonably justify, the crucial premise for

its discarding 87% of the calls on hallway/lobby DSN

phones—namely, that all minutes of all calls made during

normal business hours were “official” (and thus not ones

SUFI would have been able to charge for in the absence of

the hallway/lobby DSN phones). That idea is so far from

self-evident that it cannot be adopted without substantial

record support and reasoned consideration of the perti-

nent evidence. The Board opinions are inadequate on this

crucial point in this large-dollar dispute. Among other

things, the Board has not adequately addressed SUFI’s

submission that guests could obtain Air Force reim-

bursement for legitimate official long-distance calls made

14 SUFI NETWORK SERVICES, INC. v. US

from their rooms, which might suggest that resort to the

hallway/lobby DSN phones was in large part for non-

official calls.

The Board also provided inadequate support for its re-

jection of SUFI’s core contention that a reasonable esti-

mate of the number of additional minutes it would have

had on its network, but for the Air Force’s improper

maintenance of the hallway/lobby DSN phones, was the

number of non-local minutes those phones were used

(reasonably estimated). The Board adverted in passing

to, though did not rely on, the idea that “the personal cost

to the caller of using the SUFI phones” would have led to

fewer in-room minutes than hallway/lobby minutes, SUFI

IX at 169,089. The proposition that purchases fall as

prices rise certainly is true within a very wide range of

circumstances. But the particular circumstances at issue

can matter, and the Board here did not analyze the dis-

tinctive circumstances of the present case. It did not

attempt to assess the magnitude of any purchase-limiting

effect or, more basically, consider all relevant real-world

record facts that might affect whether, in this context, it

might even be the case that, on balance, fewer minutes

were spent on hallway/lobby calls than would have been

spent on calls made from guest rooms (in the absence of

hallway/lobby phones), despite the higher cost of in-room

calls. There is record evidence that, hallway/lobby DSN

phones being few in number, long lines formed for use of

some of those telephones, which might have created

pressure for callers to cut calls short; moreover, the

hallway/lobby telephones afforded little if any privacy.

The Board did not examine this and possibly other evi-

dence to set forth a sound basis for rejecting the number

of minutes of calls placed on the “surrogate” DSN phones

as a reasonable estimate of the measure of minutes lost to

SUFI.

The Board’s rationale is deficient for the foregoing

reasons, even without regard to the soundness of the

SUFI NETWORK SERVICES, INC. v. US 15

Board’s apparent premise that SUFI could not charge for

in-room access to the DSN for “official” long-distance calls.

For these reasons, we agree with the Court of Federal

Claims that the Board erred in determining the damages

for Count III. Under the Wunderlich Act, this count

should be remanded to the Board for reconsideration, not

independently adjudicated in the courts. And in that

reconsideration, the Board should more squarely review

the legal and evidentiary basis of its apparent premise

about “official” long-distance DSN calls than it has yet

done. The Board’s opinions addressing that issue, and the

parties’ briefs on it, leave the matter unclear. Whether or

not we could decide this in the first instance, we think it

advisable for the Board, and the parties, to address it

more fully and clearly first, given that we order a remand

on Count III in any event. We vacate the Court of Federal

Claims’ ruling on this issue and order it remanded to the

Board for those purposes.

The remand relating to this count should also encom-

pass several issues SUFI has raised in its cross-appeal.

Principally, SUFI contends that the Board erred in set-

ting the date from which interest should run on its dam-

ages for Count III. It is undisputed that under a partial

settlement agreement, SUFI is entitled to interest from

the date it actually incurred its damages. SUFI Network

Servs., ASBCA No. 55306, 10-1 BCA ¶ 34,327 at 169,534

(Dec. 14, 2009) (SUFI X). To simplify the required com-

putation for Count III, SUFI asked the Board to use the

“weighted” midpoint of the dates it incurred its damages,

accounting for the fact that damages on Count III were

“front-loaded”—i.e., more damages were incurred earlier

than later, because at some point during the damages

period, the Air Force removed some of the breaching

phones. SUFI Network Servs., ASBCA No. 55306, 10-1

BCA ¶ 34,415 at 169,887 (Apr. 5, 2010) (SUFI XI).

The Board initially selected June 15, 2001, as the

starting date for interest on damages—a date the Board

16 SUFI NETWORK SERVICES, INC. v. US

identified as “the approximate mid-point of the DSN call

data from September 1997 through May 2005, the period

for which SUFI claimed damages,” SUFI X at 169,534.

SUFI then asked the Board to reconsider its decision,

urging that “a weighted midpoint of March 1, 2000, be set

or, at a minimum, the unweighted midpoint of March 1,

2001.” SUFI XI at 169,887. In response, the Board stated

that it was “not persuaded to calculate a ‘weighted mid-

point,’ inconsistent with the unweighted midpoints we

used in our prior decisions,” but would correct the un-

weighted midpoint from June 15, 2001, to March 1, 2001,

as SUFI alternatively requested. Id.

When SUFI challenged the rejection of the March

2000 date in the Court of Federal Claims, that court

rejected the challenge because SUFI actually proposed

March 1, 2001, to the Board as an alternative. SUFI

Network Servs., 108 Fed. Cl. at 306. We see no sound

basis for that ruling, because SUFI preserved its argu-

ment for the weighted midpoint by making that argument

to the Board. On the merits, moreover, the Board gave

little explanation for rejecting the weighted midpoint,

citing only its desire for consistency with prior decisions.

We conclude, therefore, that when the Board reconsiders

Count III, as we require, it should also reconsider its

rejection of the weighted-midpoint starting date for inter-

est on damages. And at the same time, the Board should

address SUFI’s “evidence to correct the Ramstein Build-

ing No. 303 DSN phone start date from October 2000 to

October 1999” and evidence to “correct[] the 10,135 aver-

age monthly rate to 10,609” minutes per month. SUFI

VIII at 168,239.

Count V (Other Operator Numbers and Patching)

Before October 1998, SUFI agreed to carry “morale”

calls free of charge. SUFI VIII at 168,250. In October

1998, SUFI added to its switches two DSN access num-

bers for soldiers to use for these calls, which were sup-

SUFI NETWORK SERVICES, INC. v. US 17

posed to be limited to 15 minutes per soldier every two

weeks. Id. SUFI’s monitoring revealed calls up to three

hours long and multiple consecutive calls from the same

guest room; SUFI’s records showed that guests exceeded

morale-call limits by 3,046.5 minutes (50 hours and 46

minutes) in the first three months of 1999 alone. Id.

SUFI responded by blocking the specially established

telephone numbers, but Air Force personnel made other

local DSN numbers available to circumvent the block—

another breach of contract. Id. at 168,250-54. SUFI

identified 5 direct and 34 indirect DSN access numbers to

which 70 or more calls of at least 10 minutes were placed,

while the record showed that the average length of a DSN

call from a non-lodging location (thus, more likely to be

official in nature) was just under 2 minutes. Id. at

168,251, 168,254. In seeking damages for this breach by

the government, SUFI asked for compensation for each

minute of all calls that lasted at least 10 minutes on the

identified lines. Id. at 168,253.

The Board rejected SUFI’s methodology because SUFI

failed to show that the calls in question were not patched

through to local numbers, rather than to long-distance

numbers. Id. at 168,254 (“To the extent any such calls,

even if non-official, were to local phone numbers, they did

not circumvent SUFI’s commercial long distance phone

network or result in any lost revenues thereby. Except for

morale calls, this evidentiary lacuna is fatal to SUFI’s

proof of liability for lost revenues.”). For that reason the

Board awarded damages only for the 3,046.5 of excess

morale-call minutes for which SUFI produced records. Id.

We agree with SUFI that the Board’s determination

on Count V is not supported by substantial evidence.

Even if SUFI did not carry its burden to prove that all of

the calls in question were long-distance calls, there was

no basis for the Board’s conclusion that none of the calls

could be counted towards SUFI’s recovery. But the Court

of Federal Claims erred in making its own factual finding

18 SUFI NETWORK SERVICES, INC. v. US

on this issue. SUFI Network Servs., 108 Fed. Cl. at 308.

We vacate that ruling and order a remand to the Board

for reconsideration of whether SUFI’s evidence provided a

reasonably certain estimate—a fair and reasonable ap-

proximation—of damages from this breach. See National

Australia Bk. v. United States, 452 F.3d 1321, 1327 (Fed.

Cir. 2006); Bluebonnet Sav. Bk. v. United States, 266 F.3d

1348, 1355 (Fed. Cir. 2001).

Count VI (Early DSN Abuse)

In mid-1997, pursuant to its contract, SUFI provided

guests at the Ramstein military base with the ability to

use the telephone to obtain access to the DSN, including

the ability to make local calls directly over that network.

SUFI VIII at 168,233. But according to its later evidence,

SUFI soon concluded that the DSN access was being used

for long-distance calls, made through DSN (Air Force)

operators. Id. SUFI’s representative testified that he

observed a 50% reduction in long-distance calls over the

SUFI network after the Ramstein introduction of DSN

access, with a pattern of long calls (lasting up to four

hours) to the DSN information operator. Id. When it

then blocked access to the DSN operator numbers, SUFI

submitted, its call revenues returned to normal. Id.

The Board analyzed SUFI’s long-distance revenues for

the period in question, but did not find the recollection of

SUFI’s representative to be substantiated. Id. at 168,235.

On the contrary, the Board found that SUFI’s average

monthly revenues increased, rather than decreased, after

SUFI began providing DSN service. Id. Accordingly, it

held that SUFI had “not established that alleged 1997

DSN abuse caused a reduction in its long distance call

revenues” and denied any relief on Count VI. Id.

The Court of Federal Claims reversed the Board on

the ground that “[t]here were multiple other breach

factors affecting SUFI’s monthly revenues, and it is

incorrect to rely upon the monthly averages as if this

SUFI NETWORK SERVICES, INC. v. US 19

breach were the only one in play.” SUFI Network Servs.,

108 Fed. Cl. at 316. For the same reasons we have given

in discussing Count I, we do not agree that the Board’s

methodology comparing pre- and post-breach revenues

lacks substantial evidence. Accordingly, we reverse the

Court of Federal Claims on Count VI with respect to lost

profits.

SUFI also sought damages, under Count VI, to com-

pensate it for “extra work” it had to perform, and out-of-

pocket costs it incurred, in addressing the DSN abuse

involving Air Force operators. The Board did not address

these claims. SUFI VIII at 168,235. On appeal, the

government evidently concedes liability for extra work

and costs—under at least the FAR § 52.243-1 “Changes–

Fixed–Price (AUG 1987)” clause, incorporated into the

contract, see J.A. 944B; SUFI I at 161,364. But it con-

tends that the Board should be the one to calculate the

amounts due in the first instance. We agree. Although

we do not disturb the Board’s findings with respect to lost

profits, we vacate the Court of Federal Claims’ ruling on

Count VI in this respect and order a remand for the Board

to determine SUFI’s extra-work and out-of-pocket damag-

es for Count VI.

Count VII (Delta Squadron)

One of the buildings covered by SUFI’s contract (a

lodging facility at Sembach Air Force Base) housed the

administrative, maintenance, and transportation person-

nel for the Delta Squadron; before SUFI began service,

five or six government-installed DSN telephones were

available in the building for all Delta Squadron personnel

to use. SUFI VIII at 168,260. SUFI requested the re-

moval of those phones, as they were inside a lodging

facility, contrary to the contract, and the phones were

eventually removed. Id. As to the last two such phones,

the Board’s findings (and the record presented to us) are

unclear, but it appears that the Air Force agreed to the

20 SUFI NETWORK SERVICES, INC. v. US

removal only if SUFI replaced those phones with its own.

In April 2000, SUFI installed two of its own phones in the

Delta Squadron lounge, to be used (subject to monitoring)

only for expedited access to the guest rooms of Delta

Squadron personnel and for morale calls to outside num-

bers. Id. Call records revealed, however, that much of

the use fell outside those limits. Id. When SUFI com-

plained to Air Force personnel regarding the abuse and

threatened to remove the phones, SUFI was told that, if it

did so, the Delta Squadron commander would order his

troops not to use SUFI’s room phones. Id.

The Board awarded SUFI lost profits for the govern-

ment-installed phones, but awarded no damages for abuse

of the SUFI-installed phones, because it found that “SUFI

waited from 13 April 2000 until 12 June 2003 to threaten

to remove those phones” and found no government breach

regarding the SUFI-installed phones. Id. at 168,262. The

Board later corrected its findings to reflect that SUFI first

threatened to remove the phones on or about August 11,

2001, but did not otherwise alter its holding. SUFI IX at

169,090.

The circumstances under which SUFI replaced the

last two government DSN phones with its own phones are

material to whether the Board’s determination was sup-

ported by substantial evidence, but the record is incom-

plete on this issue. The Board did not discuss the

evidence regarding the government’s alleged initial re-

fusal to remove the phones or eventual agreement to

removal only if SUFI replaced them with its own phones.

Although the Court of Federal Claims seems to have

concluded that the government conceded SUFI’s crucial

factual allegations, SUFI Network Servs., 108 Fed. Cl. at

309 n.13, it is not clear to us from the record that there

are government concessions sufficient to make further

factual findings unnecessary.

SUFI NETWORK SERVICES, INC. v. US 21

We therefore vacate the Court of Federal Claims’ rul-

ing on this issue and order the issue remanded to the

Board for further findings. The Board should consider

what the government has conceded and make factual

findings regarding the circumstances surrounding SUFI’s

installation and maintenance of the two Delta Squadron

phones. If SUFI installed and maintained those phones

only under threats that breached the contract, the Board’s

rationale for denying recovery for losses caused by the

presence of the SUFI-installed phones cannot stand. In

singling out that scenario for comment, we do not con-

strain the otherwise-required inquiry on remand.

Count VIII (Prime Knight Lodgings)

Unlike the other lodgings SUFI served, the Prime

Knight lodging facilities at Ramstein had DSN phones in

the guest rooms, with worldwide service, before SUFI’s

contract with the Air Force. SUFI VIII at 168,242-43.

Although the contract provided that these phones were to

be replaced with SUFI phones once SUFI began service,

the Air Force refused to remove the phones until shortly

after September 1998, twenty months after SUFI began

service at Ramstein. Id. at 168,243-44. There is no

dispute on appeal that the Air Force breached the con-

tract by refusing to remove the phones. SUFI Network

Servs., 108 Fed. Cl. at 316.

SUFI estimated that it lost about $18,000 per month

in revenues because of the government’s breach, then

multiplied that figure by the duration of the breach to

arrive at a total of $188,260.20 in claimed damages.

SUFI VIII at 168,243. The $18,000/month figure appar-

ently reflected a comparison of the monthly revenues from

the Prime Knight lodgings with the monthly revenues

from other lodgings (on the same base) that did not have

worldwide DSN access in the guest rooms, but the Board

found that the averages were “misleading because they

did not consider the number of rooms in each of the build-

22 SUFI NETWORK SERVICES, INC. v. US

ings.” Id. The Board adopted an alternative methodology

that compared the per-room revenues of the Prime Knight

lodgings to the per-room revenues of other lodgings in the

relevant time period, and found a difference of $690.58

per room. Id. at 168,245. The Board multiplied this per-

room difference by the number of Prime Knight rooms

(176) to arrive at a total-revenue difference of

$121,542.08. Id.

Because the Board’s damages determination for

Count VIII was reasonable and supported by substantial

evidence, the Court of Federal Claims erred in displacing

it with its own damages calculation. SUFI Network

Servs., 108 Fed. Cl. at 317. The only explanation the

Court of Federal Claims gave for rejecting the Board’s

calculation was that the “revenues received per room from

other Ramstein lodging facilities were themselves re-

pressed” as a result of other breaches, such as those

involving “hallway and lobby DSN telephones.” Id. But

the Court of Federal Claims identified no reason to think

that the Prime Knight and other Ramstein lodgings were

affected differently by the other breaches—more precisely,

no basis for concluding that the Board had to find such a

difference. Indeed, building diagrams indicate that the

Prime Knight lodgings, like others, made DSN phones

available to guests other than in their rooms. J.A. 1562.

Without a difference regarding other factors, the compari-

son of buildings the Board used to estimate the effect of

the present breach is reasonable. Accordingly, we reverse

the Court of Federal Claims on Count VIII.

Count XI (German Troops Housing)

During the pre-contract bidding process, the Air Force

made statements to SUFI about who would be staying at

the lodgings SUFI would serve under the contract: “tran-

sient” guests “in transition between Europe and the

USA,” who would “use the long distance service to re-

establish themselves in the USA or call relatives in the

SUFI NETWORK SERVICES, INC. v. US 23

USA.” SUFI VIII at 168,269. The Air Force further

stated that “Americans are frequent callers and use the

long distance service.” Id. Starting in March 2003,

however, and without advance notice to SUFI, the Air

Force housed non-transient German troops in some of the

lodgings, an arrangement that lasted two years—until

May 2005. Id. At the request of their commander, the

Air Force decided generally not to give German troops

personal identification numbers that would enable them

to use SUFI’s phones, although certain soldiers individu-

ally requested and received such numbers. Id. From

March 2003 to May 2005, SUFI’s revenues in the relevant

lodgings declined to about 36% of the pre-March 2003

levels. Id.

The Board found that the Air Force’s conduct regard-

ing the German troops constituted a change in the terms

of the contract that caused SUFI to have to undertake

extra work and that reduced its revenues, justifying an

equitable adjustment for SUFI’s extra work. Id. at

168,270. The Board did not address SUFI’s claim that the

Air Force’s actions breached implied duties of good faith

and cooperation and violated the express terms of the

contract; nor did the Board explain why it was not award-

ing damages for SUFI’s lost profits on the phones in

rooms occupied by the German troops. Id. In these

circumstances, we cannot uphold the Board’s decision

under the Wunderlich Act standard of review. But the

Court of Federal Claims erred in itself determining the

proper damages for Count XI. We vacate the Court of

Federal Claims’ ruling on Count XI and order that count

remanded to the Board for further consideration.

Count XVI (Post-Termination Lost Profits)

Count XVI concerns SUFI’s loss of profits for the

years in which it would have enjoyed the fruits of the

contract had there been no government breach, which led

to the justified contract termination by SUFI. The parties

24 SUFI NETWORK SERVICES, INC. v. US

disagree about the interpretation of two contract provi-

sions relevant to calculating SUFI’s post-termination lost

profits—concerning the term of the contract and whether

SUFI would have served new lodging facilities as they

were added to bases covered by the contract. Matters of

contract interpretation are issues of law that we review de

novo. Massachusetts Bay Transp. Auth. v. United States,

254 F.3d 1367, 1372 (Fed. Cir. 2001).

Contract Term. Three provisions bear on determining

the contract term for purposes of SUFI’s post-termination

lost profits. As modified, section F.4 provides: “The term

of this contract will be for 180 months (15 years).” J.A.

965. As modified, sections H.27 and H.29 provide:

27. OPTION TO BUY EQUIPMENT

Upon completion of the performance period of each

site (15 years), and prior to removal of any con-

tractor owned equipment, the Government shall

have the option to buy existing equipment at fair

market value, which shall be negotiated between

the contracting officer and the contractor for each

site.

....

29. PERFORMANCE PERIOD

The performance period for each site will com-

mence upon actual completion of installation, in-

spection and acceptance by the ordering NAFI

[Non-Appropriated Fund Instrumentality] for the

system ordered for that particular site and shall

not exceed a period of 15 years from that date.

J.A. 966 (emphases added). Relying on section F.4, the

Board interpreted the contract to provide for an across-

the-board fifteen-year term from the date the contract

was awarded, and thus set April 25, 2011, as the end date

for contract performance for all sites. SUFI IX at

SUFI NETWORK SERVICES, INC. v. US 25

169,092. The Board considered its reading to be con-

sistent with section H.29, which states only that the

performance period for each site “shall not exceed a period

of 15 years,” not that the performance period for each site

would last fifteen years. Id.

The Court of Federal Claims rejected the Board’s in-

terpretation, instead reading the contract to provide for a

separate fifteen-year term for each site, running from the

date of completion of installation, inspection, and ac-

ceptance by the ordering NAFI, as specified in section

H.29. SUFI Network Servs., 108 Fed. Cl. at 318. The

court reasoned that the Board’s interpretation would

“render sections H.27 and H.29 meaningless and super-

fluous,” because “there would be no reason to have other

provisions addressing a performance period for each site.”

Id. We conclude that, although the Board’s reading may

not render sections H.27 and H.29 “meaningless and

superfluous” (H.27 adds an option to buy equipment and

H.29 specifies when SUFI must begin performing its

duties under the contract), the Court of Federal Claims’

interpretation is the more reasonable reading of the

relevant contract provisions.

First, the Board’s interpretation is in substantial ten-

sion with section H.27, whose language—“the perfor-

mance period of each site (15 years)”—strongly indicates

that the performance period for each site shall last 15

years, rather than merely that it shall not exceed 15

years. Second, given that the contract anticipates the

addition of new sites years into the contract, with SUFI

bearing substantial up-front installation costs for each

site, it makes sense for the contract to be providing a site-

specific performance period to permit recoupment of such

investments. As the Court of Federal Claims reasoned,

contracting for a separate term for each site “reflects the

sound business principle that SUFI could not earn any

revenue on its investment at a base until the telephone

system was up and running.” SUFI Network Servs., 108

26 SUFI NETWORK SERVICES, INC. v. US

Fed. Cl. at 319. In the absence of a persuasive contrary

showing, the fairer reading of the contract language,

considering the economic logic of the bargain, is that the

contract provided a performance period for each site.

Accordingly, we affirm the Court of Federal Claims’

conclusion that SUFI’s post-termination lost profits

should be calculated for a term of fifteen years from the

date of completion and acceptance of the telephone system

at each site. The Board must recalculate damages under

Count XVI on this basis.

Serving New Facilities. As part of its claim for profits

it would have earned had the contract continued past its

2005 termination, SUFI contended that it would have

served two lodging facilities the Air Force added to SUFI-

served bases after that termination. Its sole argument, at

this stage, is that it would have served those facilities

because it had a contractual right to do so. We agree with

the Court of Federal Claims that SUFI had no such

contractual entitlement. SUFI, 108 Fed. Cl. at 319-20; see

also SUFI II at 161,868-69; SUFI III at 162,194-95.

SUFI points to no contract provision that actually

gives it that right. There also is no language making this

contract a “requirements” contract, under which SUFI

was entitled to meet all of some defined set of the Air

Force’s needs. Moreover, the contract provision that the

parties identify as most relevant, section 3.11, points

strongly against SUFI’s argument: addressing “Expanded

Service,” it provides that SUFI is obligated to provide

“expanded services . . . as requested by the government,”

and it includes “new buildings” within that provision. See

SUFI Network Servs., 108 Fed. Cl. at 319 (quoting provi-

sion). Far from entitling SUFI to provide certain service,

including at new buildings, it merely obliges SUFI to do

so, when “requested by the government.”

SUFI has presented no evidence sufficient to create

the asserted contractual entitlement, which is more

SUFI NETWORK SERVICES, INC. v. US 27

contrary to than supported by the contract language. It

identifies no clear, pertinent pre-contract representations

about new buildings. And we cannot conclude that the

economic logic of the overall contractual bargain neces-

sarily implies such an entitlement as to new buildings.

SUFI simply has not shown that its interest in earning

back its investments in particular buildings so clearly

required that SUFI have the option to serve new build-

ings on the same base (if any were built) that an implied

contractual provision of such an option must be inferred.

Finally, the asserted contractual entitlement is not im-

plied by the fact that, for many years, the Air Force

exercised its discretion to request SUFI to provide certain

“expanded service.” Accordingly, we see no error in

denying recovery for the two facilities built at SUFI-

served bases after the contract termination.

Counts XVIII and XXII (Interfaces and Switches)

Counts XVIII (SIMS/LTS Interfaces) and XXII

(Change of Air Force Switches) relate to SUFI’s claims for

extra work and out-of-pocket expenses arising out of

problems in making its communications systems function

well when, as required, they connected with certain of the

Air Force’s systems. The Court of Federal Claims re-

versed the Board’s finding of no liability, then calculated

damages for these counts on its own. SUFI Network

Servs., 108 Fed. Cl. at 311-12, 314-15. On appeal, the

government challenges only the Court of Federal Claims’

decision to calculate SUFI’s damages directly, rather than

remand to the Board. We agree. We vacate the Court of

Federal Claims’ ruling in this respect and order remand

for the Board to determine damages for Counts XVIII and

XXII, consistent with the Court of Federal Claims’ liabil-

ity determinations.

Amounts of Certain Compensable Expenses

There is no dispute here that SUFI is entitled to pay-

ment for certain expenses it incurred in performing the

28 SUFI NETWORK SERVICES, INC. v. US

contract or in responding to the breach, but the calcula-

tion of the payments due is in dispute. In order to calcu-

late the payments due for certain identified, compensable

work by SUFI, the Board determined the hourly rates of

SUFI’s employees who performed the work (dividing their

annual salary by 2080, i.e., 52 x 40, hours) and awarded

SUFI hourly compensation at such rates, without adding

amounts for SUFI’s overhead or profits. On reconsidera-

tion, which the government did not oppose on this issue,

the Board found that SUFI was entitled to both overhead

and profits for the work that was compensable as an

equitable adjustment under the contract’s FAR § 52.243–1

provision, 48 C.F.R. § 52.243–1, but only overhead (not

profits) for work that was compensable as damages for

breach. SUFI IX at 169,094. The Board found overhead

not proven, however, and so awarded nothing for over-

head, and it made no change to its previous award of 10%

profit on some of the contract-change work. Id.; SUFI

VIII at 168,232-33, 168,274-75. The Court of Federal

Claims, on review, held that SUFI was entitled to over-

head and profits regardless of whether it incurred the

expenses at issue because of a contract change or a

breach, and awarded SUFI a 25% supplement to the

labor-rate amount to cover both overhead and profits.

SUFI Network Servs., 108 Fed. Cl. at 300-01.

The Court of Federal Claims did not identify, and we

do not see, any error in the Board’s first step—

determining base hourly labor rates. Nor do we see error

in the Board’s finding that SUFI’s claim for overhead

failed “for lack of proof,” because “[t]he record does not

show which costs SUFI classified as ‘overhead’ and

whether SUFI added overhead costs to overhead expense

items, to G&A [General and Administrative] costs or to

the compensation of any employee or consultant.” SUFI

IX at 169,094. Although the government did not oppose

the addition of overhead expenses, the Board found inad-

equate evidence in the record to quantify those expenses,

SUFI NETWORK SERVICES, INC. v. US 29

and we see no reason to disturb the Board’s finding. To

the extent the Court of Federal Claims concluded other-

wise, we reverse that ruling.

As to profits, there is now no dispute that—as the

Court of Federal Claims held, reversing the Board—SUFI

is entitled to profits for the work and out-of-pocket ex-

penses at issue, whether they resulted from a contract

change or a breach. A dispute remains, however, about

the amount to be awarded for such profits. In this re-

spect, we see no error in the Board’s selection of a 10%

profit rate. Although section 3.11.1 of the contract speci-

fies that, for additional work not specified in the contract,

SUFI shall respond to the government’s request and

provide a “cost proposal of no more than 25% over cost,”

J.A. 938, neither that provision nor anything else in the

contract says that SUFI shall be entitled to a 25% profit.

The Board, in selecting a 10% profit rate, cited earlier

Board decisions setting profit rates between 9% and 10%.

SUFI IX at 169,095. Other than to complain that the

Board’s rate did not include overhead, SUFI does not

identify error in the Board’s selection of its profit rate.

Accordingly, we vacate the ruling of the Court of Federal

Claims and order a remand for the Board to include

profits for all work and out-of-pocket expenses, whether

incurred as a result of a contract change or breach.

Kapaun Line Fee

Vogelweh Air Base and Kapaun Air Station, located

at essentially the same place, were added to the contract

by Delivery Order No. 4. SUFI’s May 31, 1996 offer to the

Air Force for Delivery Order No. 4 included the three

Kapaun dormitories for the Non-Commissioned Officer

Academy. According to SUFI, however, before it began

the installations for Delivery Order No. 4, it received word

from Donald Hall, the community lodging officer at Ka-

paun, that the Academy was closing and SUFI should

delete the Kapaun buildings from the order. Although no

30 SUFI NETWORK SERVICES, INC. v. US

modification was issued removing the Kapaun buildings

from the contract, SUFI performed the installation for

Vogelweh, but did not wire Kapaun. Later, after complet-

ing its installation work at the location, the Air Force

requested that SUFI serve Kapaun, but SUFI protested,

in part because the need to redeploy its installation crew

would increase its costs. SUFI negotiated with Contract-

ing Officer Technical Representative Sellers and other Air

Force personnel to install the Kapaun system in exchange

for a $1 per-day, per-room line fee. Although SUFI did

not receive a contract modification signed by the contract-

ing officer that incorporated the new line fee, it proceeded

with the installation, relying on promises by Representa-

tive Sellers and other Air Force personnel that the line fee

would be approved. After the installation was complete,

the Air Force refused to pay the line fee.

Although SUFI acknowledges that the contract does

not provide for a line fee at Kapuan, SUFI contends that

the Air Force is estopped from denying it payment in the

amount of the line fee because Air Force personnel misled

it into completing the installation by promising the re-

quested line fee. To succeed in its claim, SUFI must show

(1) misleading conduct, which may include not on-

ly statements and action but silence and inaction,

leading another to reasonably infer that rights

will not be asserted against it; (2) reliance upon

this conduct; and (3) due to this reliance, material

prejudice if the delayed assertion of such rights is

permitted.

Lincoln Logs Ltd. v. Lincoln Pre-Cut Log Homes, Inc., 971

F.2d 732, 734 (Fed. Cir. 1992). It also must show that the

government engaged in “affirmative misconduct,” Zacha-

rin v. United States, 213 F.3d 1366, 1371 (Fed. Cir. 2000),

and that the Air Force personnel in question were acting

within the scope of their authority, see New Am. Ship-

builders, Inc. v. United States, 871 F.2d 1077, 1081 (Fed.

SUFI NETWORK SERVICES, INC. v. US 31

Cir. 1989). The Board rejected SUFI’s claim, SUFI VIII

at 168,259; SUFI IX at 169,091-92, and the Court of

Federal Claims affirmed, SUFI Network Servs., 108 Fed.

Cl. at 314 (Fed. Cl. 2012).

We affirm on this issue, because SUFI has not proved

the third required element, i.e., material prejudice due to

its reliance. SUFI stakes its entire case on the conduct

and presumptive authority of the Air Force representa-

tives who communicated with it regarding the line fee.

But SUFI has simply not established that Mr. Hall, the

lodging officer who SUFI says originally told it not to wire

Kapaun, and on whose statements SUFI evidently relied

in not wiring Kapaun concurrently with Vogelweh, had

any authority to modify the contract to remove Kapaun,

or that he or any other Air Force representative engaged

in any misconduct in permitting SUFI to wire Vogelweh

without concurrently wiring Kapaun. And SUFI has

made no claim that it suffered prejudice from the denial of

the line fee even if it was independently obligated by

contract to wire Kapaun.

Because SUFI decided to complete the Vogelweh in-

stallation without concurrently wiring Kapaun, despite

the fact that there was no modification to the contract

releasing it from its obligation to serve Kapaun, the fact

that SUFI subsequently wired Kapaun only in reliance on

the Air Force’s false promises of a line fee is of no conse-

quence. SUFI may have reasonably inferred from the Air

Force’s later conduct that the Air Force would not assert

its rights to have SUFI wire Kapaun under the original

(unmodified) Delivery Order, but it has not shown any

prejudice from the government’s delayed assertion of that

right. On the contrary, Mr. Hall’s statements about

deleting Kapaun from the delivery order do not create an

estoppel or a modification, and with no modification of the

contract, SUFI was obliged to wire Kapaun. It was

SUFI’s own choice not to do so when it wired Vogelweh, a

choice not connected to the Air Force’s later alleged mis-

32 SUFI NETWORK SERVICES, INC. v. US

conduct. Costs it incurred in returning to the site to wire

Kapaun are its own responsibility. Accordingly, we affirm

the Court of Federal Claims on this issue.

CONCLUSION

For the foregoing reasons, we affirm in part, reverse

in part, vacate in part, and remand to the Court of Feder-

al Claims, with instructions to remand to the Board for

further factual findings consistent with this opinion.

No costs.

AFFIRMED-IN-PART, REVERSED-IN-PART,

VACATED-IN-PART, AND REMANDED