The opinion
In the United States Court of Federal Claims
No. 17-464C
(Filed: January 28, 2020)
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VIRGINIA ELECTRIC AND POWER
COMPANY d/b/a DOMINION Contracts; termination for
ENERGY VIRGINIA, convenience; allowable
costs; FAR 52.249-2
Plaintiff, (1996); FAR 31.205-42(b)
(2018); summary
v. judgment; upgrade costs;
utilities.
THE UNITED STATES,
Defendant.
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Alan M. Freeman, Washington, DC, for plaintiff. Albert B. Krachman
and Jaret N. Gronczewski, of counsel.
Barbara E. Thomas, Senior Trial Counsel, United States Department
of Justice, Civil Division, Commercial Litigation Branch, Washington, DC,
with whom were Joseph H. Hunt, Assistant Attorney General, Robert E.
Kirschman, Jr., Director, Patricia M. McCarthy, Assistant Director, for
defendant. Erika L. Whelan Retta, Trial Attorney, Air Force Legal
Operations Agency, of counsel.
OPINION
BRUGGINK, Judge.
Plaintiff claims that the United States owes Virginia Electric and
Power Company, doing business as Dominion Energy Virginia
(“Dominion”), the cost of upgrading the metering, lighting, and distribution
of the electrical system at Fort Monroe, a military base in the Commonwealth
of Virginia. The United States, acting through the Defense Energy Support
Center, entered into a 50-year contract with Dominion in 2004 for utility
services (“the Utility Services Contract”) and contemporaneously, but
separately, sold Dominion the electrical system at Fort Monroe. On
September 15, 2011, the Army terminated for convenience the Utility
Services Contract. Subsequently, the United States and Dominion settled
certain cost claims relating to the termination and entered into a separate
contract for Dominion to supply electricity and certain utility services at Fort
Monroe. The only outstanding question is whether the United States is liable,
under the terminated line item of the Utility Services Contract, for potential
future upgrade costs, i.e., costs not incurred prior to termination.
Plaintiff asserts that the United States terminating the Utility Services
Contract unavoidably triggered an obligation for plaintiff, which continues
to own the electrical system, to bring the system up to higher standards than
those that would have applied if the Utility Services Contract had continued.
It points to its obligations under state law and corporate policies.
Pending are the parties’ cross-motions for summary judgment.
Plaintiff moved for summary judgment as to liability on its Counts I, II, and
IV; its motion is silent on Count III. Defendant cross-moved for summary
judgment on Counts I, II, and IV and moved for summary judgment on Count
III. Plaintiff requested summary judgment on Count III in a footnote of its
response brief. Defendant also moved for summary judgment on an equitable
adjustment theory raised for the first time in plaintiff’s motion. The motions
are fully briefed. The Fort Monroe Authority, represented by Virginia’s
Office of the Attorney General, submitted an amicus brief in support of
plaintiff’s position. The court held oral argument on December 11, 2019. For
the reasons set out herein, we deny plaintiff’s motion for summary judgment
and grant the government’s motion.
BACKGROUND
In the late 1990s, Congress authorized the Secretaries of the Military
Departments to privatize utility systems on military bases as a cost-saving
mechanism. The statute authorized the departments to “convey a utility
system, or part of a utility system, under the jurisdiction of the Secretary to
a municipal, private, regional, district, or cooperative utility company or
other entity.” 10 U.S.C. § 2688(a) (2018).
The Secretary of Defense later issued a directive to the Military
Departments “to privatize all utility systems, except where needed for unique
security reasons or when privatization is uneconomical.” Def.’s App. 7.
Privatization meant “the total divestiture of a utility system through the
transfer and conveyance of the installation’s utility infrastructure assets in
conjunction with and for the purpose of the conveyee providing utility
2
distribution services on a long-term basis.” Id. The directive thus outlined
two goals: (1) divest the United States of utility systems and (2) secure utility
services. 1
To implement this directive, in 2001, the Defense Energy Support
Center issued a solicitation seeking “offerors to assume ownership, operation
and maintenance of the utility infrastructures” at four Army bases: Fort
Monroe, Fort Eustis, Fort Story, and Fort Lee. 2 Id. at 11. Fort Monroe, which
is in Hampton, Virginia, and at the time encompassed 568 acres, is the base
at issue here. The available utility infrastructures at Fort Monroe were
electric, natural gas, water, and wastewater. 3 The solicitation outlined two
different transactions: (1) purchase of utility systems and (2) a 50-year Utility
Services Contract.
Dominion offered to buy the electrical systems and supply utility
services at Fort Monroe, Fort Eustis, and Fort Story. Dominion offered two
alternatives for its provision of service. First, it offered a “regulated
proposal” under which the United States would pay for bringing the electrical
system up to certain modern standards imposed on Dominion’s other
customers. Alternatively, it offered an “unregulated proposal” under which
“[t]he electric system components were not required to meet – and they did
not meet – the same regulated standards applicable to comparable systems
serving regulated customers in other parts of Dominion’s Virginia service
territory.” Pl.’s Mot. Summ. J. 1; Am. Compl. ¶ 15 (“In a nutshell, before the
contract termination, the Fort Monroe utility system was exempt from
meeting regulated standard.”).
The Defense Energy Support Center awarded Dominion a contract for
utility services on the electrical systems at those three bases on June 24, 2004.
The Preamble summarized the Utility Services Contract as follows:
[Dominion] shall assume ownership, operation and
maintenance of the electric distribution systems at Fort Eustis,
1
Utility services meant operation and maintenance of the system rather than
supplying the commodity, such as electricity.
2
The solicitation did not seek proposals for the sale of electricity.
3
The Army owned and operated the electrical system at Fort Monroe, while
Dominion supplied electricity under a separate, unrelated contract. Dominion
supplied electricity to “[a] single 13.2-kV Virginia Power delivery point . . .
near the center of the installation,” which the Army’s electrical system then
distributed throughout the base. Def.’s App. 136.
3
Fort Story, and Fort Monroe, Virginia. [Dominion] shall
furnish all necessary labor, management, supervision, permits,
equipment, supplies, materials, transportation, and any other
incidental services required for the complete ownership,
operation, maintenance, repair, upgrade, and improvement of
the utility system. These services shall be provided in
accordance with all terms, conditions, and special contract
requirements, specifications, attachments, and drawings
contained explicitly in this contract or incorporated by
reference.
Def.’s App. 99. The Preamble incorporated a version of Dominion’s proposal
into the Utility Services Contract. Of importance here, the incorporated
proposal was the “unregulated” proposal, which meant that the United States
accepted the proposal that did not require Dominion to upgrade the system
to modern standards for its metering, lighting, or distribution, among other
things.
The Utility Services Contract did not convey the electrical system to
Dominion. Rather, the Utility Services Contract provided at section C.2.2:
“The conveyance of the utility system is authorized by and conducted under
10 USC § 2688. The conveyance of the utility system is not an acquisition
and therefore is not subject to the FAR and its supplements.” Id. at 20.
Section C.5.1 explained:
Prior to the transfer of title, such facilities shall continue to be
owned by the Government. Transfer of title shall be
accomplished by Easement. The Easement shall provide the
complete list of all assets to be sold. . . . The parties shall
prepare and execute such additional documents as may be
necessary to implement the ownership transfer.
Id. at 25. In other words, transfer of ownership of the infrastructure, although
related to the Utility Services Contract, was accomplished separately.
After entering the Utility Services Contract, the parties executed the
Bill of Sale, Easement, and Promissory Note. The Bill of Sale, executed on
February 16, 2005, stated:
The United States of America . . . sells, transfers and
conveys to the Virginia Electric and Power Company dba
Dominion Virginia Power, . . . the property described below:
4
All those certain facilities and equipment, including, but
not limited to, substations, switching stations, transformers,
exterior lighting, overhead electrical lines, and underground
electrical lines, comprising the Fort Monroe, Virginia electrical
system, all or part of which is more particularly described on
Exhibit “A”, attached hereto and made a part of this Bill of
Sale.
This sale is subject to the following provisions:
1. The terms and conditions found in the Utility Distribution
Contract No. SP0600-04-C-8253 and Department of the Army
Easement No. DACA65-2-05-34 being agreements between
the Government and the Grantee;
2. The Government covenants that it has good and valid title to
the facilities and equipment being conveyed by this Bill of
Sale, . . . and
3. The Government makes no warranty with regards to the
condition of the facilities and equipment.
Id. at 149 (emphasis omitted).
The Easement, also executed on February 16, 2005, provided in
pertinent part:
The Secretary of the Army, under and by virtue of the
authority vested in the Secretary by Title 10, United States
Code, Section 2688 and Title 10, United States Code, Section
2668, having found that the granting of this easement is not
incompatible with the public interest, hereby grants to:
Virginia Electric and Power Company dba Dominion Virginia
Power, hereinafter referred to as the Grantee, an easement for
construction, operation, maintenance, repair and replacement
of electric utility system, including all right, title and interest
in and to all appurtenances located thereon, hereinafter referred
to as the facilities, over, across, in and upon lands of the United
States as identified in Exhibit(s) “A” and “B”, hereinafter
referred to as the premises, and which are attached hereto and
made a part hereof. This easement is issued in conjunction with
Utility Distribution Contract No. SP0600-04-C-82S3
5
hereinafter referred to as the contract, between the Government
and the Grantee.
This easement is granted subject to the following
conditions.
1. Term[:] This easement is hereby granted for a term of fifty
(50) years, beginning December 1, 2004, and ending
November 30, 2054.
2. Contract-Easement Relationship[:] This easement and the
contract shall not merge, but the terms and conditions of each
shall survive the execution and delivery of this easement and
any subsequent recordation thereof. In the event the terms and
conditions of this easement conflict with the terms and
conditions of the contract, the terms and conditions of the
contract shall prevail. . . .
3. Transfer of Ownership
a. The Fort Monroe Military Installation’s Electrical
System consists of, but is not limited to:
1. Approximately 586 street lights/poles
2. Approximately 106,428 linear feet of under-
ground electric lines
3. Approximately 2,227 kilo volts transformers
(including 139 underground structures/man-
holes, 20 miles of underground lines and 107
underground transformers
4. One-(1) 300 KV Sub/Switch Station Building
which includes 9 switching cabinets
b. The ownership of the Fort Monroe Military
Installation’s electrical system is hereby transferred by
the Government and accepted by the Grantee.
Id. at 150-65 (emphasis omitted). The practical effect of these documents
was to convey the electrical system to Dominion and grant Dominion a 50-
year right of access to the Fort Monroe property.
6
In the third element of the transaction, Dominion executed a
Promissory Note on February 28, 2005, promising to pay the Army
$2,133,075.93 for the Fort Monroe electrical system. The parties
incorporated the Bill of Sale, the Easement, and the Promissory Note into the
Utility Services Contract through Modification 4 dated April 20, 2005.
Finally, regarding ownership of the electrical system itself, the Utility
Services Contract provided in paragraph 4 of the Preamble:
[A]t the end of the contract term [Dominion] may
submit a claim for unrecovered investments. . . . The parties
anticipate that at its expiration this contract may be renewed at
mutually satisfactory terms. If the contract is renewed, no
claim for unrecovered investments shall be allowed. If the
contract is not renewed and [Dominion’s] claim for
unrecovered investments is allowed, the Government may, at
its sole option, reacquire the electric distribution system in its
entirety for the amount of the unrecovered investment claim
settlement without additional compensation. The reacquisition
shall be effective upon payment of the unrecovered investment
claim settlement. In the event the Government exercises its
reacquisition option the electric system shall be tendered to the
Government free of liens or encumbrances of any kind.
Id. at 99.
The Utility Services Contract had three line items, one for each
military base: CLIN 1 Fort Eustis, CLIN 7 Fort Monroe, and CLIN 11 Fort
Story. Each contract line item had two components: (1) the Fixed Monthly
Charge for utility services and (2) the Monthly Credit as Payment for
Purchase Price. The Fixed Monthly Charge represented what the United
States would pay Dominion for two sub-components of utility services: (a)
operations and maintenance and (b) renewals and replacements. The parties
set the Fixed Monthly Charge for the first two years of the contract term,
with later years subject to price redetermination. The parties could adjust the
Fixed Monthly Charge for Capital Upgrades as set out in the contract. The
Monthly Credit represented the monthly part of the $2 million purchase price
that the United States would subtract from the Fixed Monthly Charge. CLIN
7 set out the two components as follows:
7
Id. at 103.
Although the parties chose the “unregulated” option, the Utility
Services Contract nevertheless provided in section C.11.1 that Dominion was
“responsible for accomplishing all required upgrades and renewals and
replacements to maintain and operate the utility system(s) in a safe, reliable
condition, and to meet the requirements of this contract.” Id. at 118. Plaintiff
specifically proposed a list of Initial Capital Upgrades in its Schedule B-2,
which were “those repair, replacement, and improvement activities” that
Dominion would complete to bring the system as purchased up to applicable
regulatory and corporate standards; the Initial Capital Upgrade did not
include the metering, lighting, and distribution at issue in this case. Id.
Upgrades also included Future Capital Upgrades, namely “investments in the
utility system resulting from changes in the requirements, laws or
regulations.” Id. The contract defined renewals and replacements as
“investments in the utility system to renew or replace system components
that fail or reach the end of their useful life.” Id.
The parties anticipated that Dominion would submit “an Annual
Capital Upgrades and Renewals and Replacements Plan that identifies capital
upgrades and major renewals and replacements the Contractor intends to
accomplish.” Id. The Utility Services Contract further explained that the
government reserved “the right to determine at its discretion, whether it will
pay for any portion of proposed upgrades.” Id. at 118-19. The government
would pay for approved upgrades when accomplished. The contract stated
8
that the government would pay for the renewals and replacements named in
Schedule B-2 and set out a process for approving future capital upgrades.
Not included in the upgrades and renewals proposed initially, plaintiff
concedes, were the upgrade costs sought here. The claimed upgrade costs do
not fall within the upgrade categories, plaintiff explained, because the
government chose the “unregulated” contract approach when it entered into
the Utility Services Contract. Moreover, even if the “unregulated” contract
would have covered the anticipated work, the United States did not order the
upgrades Dominion now claims under the contract and Dominion did not
begin the disputed upgrade work during the contract performance period.
Section I.2 incorporated “FAR 52.249-2 Termination for
Convenience of the Government (Fixed Price) Sep 1996” into the Utility
Services Contract. Id. at 47. That clause stated:
(a) The Government may terminate performance of work
under this contract in whole or, from time to time, in part if the
Contracting Officer determines that a termination is in the
Government’s interest. The Contracting Officer shall terminate
by delivering to the Contractor a Notice of Termination
specifying the extent of termination and the effective date. . . .
(e) After termination, the Contractor shall submit a final
termination settlement proposal to the Contracting Officer . . .
(f) Subject to paragraph (e) of this clause, the Contractor and
the Contracting Officer may agree upon the whole or any part
of the amount to be paid or remaining to be paid . . .
(g) If the Contractor and the Contracting Officer fail to agree
on the whole amount to be paid because of the termination of
work, the Contracting Officer shall pay the Contractor the
amounts determined by the Contracting Officer as follows . . .:
(1) The contract price for completed supplies or services
accepted by the Government . . . not previously paid for,
adjusted for any saving of freight and other charges.
(2) The total of—
(i) The costs incurred in the performance of the work
terminated, including initial costs and preparatory expense
9
allocable thereto, but excluding any costs attributable to
supplies or services paid or to be paid under subparagraph
(g)(1) of this clause;
(ii) The cost of settling and paying termination settlement
proposals under terminated subcontracts that are properly
chargeable to the terminated portion of the contract if not
included in subdivision (g)(2)(i) of this clause; and
(iii) A sum, as profit on subdivision (g)(2)(i) of this clause . . .
(3) The reasonable costs of settlement of the work terminated,
including— (i) Accounting, legal, clerical, and other expenses
reasonably necessary for the preparation of termination
settlement proposals and supporting data; (ii) The termination
and settlement of subcontracts (excluding the amounts of such
settlements); and (iii) Storage, transportation, and other costs
incurred, reasonably necessary for the preservation, protection,
or disposition of the termination inventory. . . .
(i) The cost principles and procedures of Part 31 of the Federal
Acquisition Regulation . . . shall govern all costs claimed,
agreed to, or determined under this clause. . . .
(l) If the termination is partial, the Contractor may file a
proposal with the Contracting Officer for an equitable
adjustment of the price(s) of the continued portion of the
contract. . . . Any proposal by the Contractor for an equitable
adjustment under this clause shall be requested within 90 days
from the effective date of termination unless extended in
writing by the Contracting Officer. . . .
FAR 52.249-2.
The United States did not give Dominion the opportunity to perform
under the Utility Services Contract for fifty years. Instead, in 2005, Congress
selected Fort Monroe for closure under the Defense Base Closure and
Realignment Act of 1990, Pub. L. No. 101-510, as amended by later statutes.
Am. Compl. ¶ 12. From 2005 to 2011, the United States and the
Commonwealth of Virginia laid the groundwork for what would happen to
the Fort Monroe property once it was no longer a United States military base.
10
Virginia is a player here, because the Commonwealth, in two deeds
dated 1838 and 1936, conveyed about 285 acres of the property occupied by
Fort Monroe to the United States. The deeds stated that title to the property
would revert to Virginia if the United States ceased using the property for
“fortification or national defense.” Def.’s App. 483. Virginia had also
conveyed another part of the Fort Monroe property to the United States, and
although Virginia did not hold the same reversionary interest in that property,
the United States and Virginia negotiated a transfer of that property back to
the Commonwealth as well. The United States and Virginia negotiated these
transfers of property after Congress selected Fort Monroe for closure. Over
time, Virginia created an entity responsible for Virginia’s portion of the Fort
Monroe property: The Fort Monroe Authority.
On January 27, 2011, the contracting officer sent Dominion a
memorandum titled “Operation and Maintenance Contract SP0600-04-C-
8253 Partial Termination for Convenience of the Government.” Id. at 259.
The memorandum stated:
1. The Army, in compliance with Base Realignment and
Closure [] Public Law, will close Fort Monroe on 15
September 2011. By this date, Army missions will be
relocated and property will transition to the Commonwealth
of Virginia. In accordance with Federal Acquisition
Regulation clause 52.249-2— Termination for
Convenience of the Government (Fixed-Price), contract
line item number 0007 for Privatization of Fort Monroe,
Virginia Electric Distribution System is hereby terminated
for convenience effective 15 September 2011.
2. It is requested that you submit a termination settlement
proposal no later than 28 March 2011. If you have any
questions, please contact the undersigned at [contact
information].
Id.
Dominion informed the contracting officer that, in Dominion’s view,
the partial termination for convenience notice was insufficient because “it
did not clearly state the Government’s desire upon termination,” specifically
whether the United States would exercise its option to reacquire the electrical
system. Id. at 260. Following discussions with Dominion, on June 3, 2011,
the Director of Business Operations, 633d Contracting Squadron,
11
Department of the Air Force, sent Dominion a revised memorandum
regarding the termination of Utility Services Contract CLIN 7. The first
paragraph replicated the first paragraph of the original memorandum. The
final paragraph again requested a termination settlement proposal, now by
August 2, 2011. New paragraph two stated,
The Army desires [Dominion] to continue ownership of the
electrical distribution system at Fort Monroe after termination
effective date. While the Army continues to own the
property[,] it will continue to provide [Dominion] with a
standard utility easement for future access to the distribution
system. The Army believes these easements will be conveyed
with the land and be further granted by the Fort Monroe
Authority or any other future property owner as a requirement
in the terms of the conveyance from the Army.
Id. at 266. Dominion submitted its settlement proposal on August 2, 2011.
On September 15, 2011, the Utility Services Contract CLIN 7
terminated. As of September 15, 2011, Dominion owned the Fort Monroe
electrical system, but Dominion no longer sold the United States utility
services. The United States owned the real property at Fort Monroe.
On October 24, 2011, Dominion and the Army Contracting Command
at Rock Island executed an “Authorization for Electric Service” under a
preexisting Contract No. GS-00P-08-BSD-0560. That contract is an
areawide public utility contract between the General Services Administration
and Dominion, executed in 2008, which we will refer to as the Areawide
Contract. Id. at 239-56, 274. The Areawide Contract is a “master contract”
issued “to cover the utility service acquisitions of all Federal agencies in the
franchised certificated service territory from [Dominion] for a period not to
exceed ten (10) years.” Id. at 241. The Authorization stated that Dominion
would provide “Continue[d] Service” and “Special Facilities” to Fort
Monroe, effective September 15, 2011, and continuing “until notified by
Customer.” Id. at 274.
The Authorization stated that Dominion would provide electric
“[s]ervice through one 7.5 mVA transformer to multiple delivery points with
primary metering at 13.2 kV[] [i]nstead of[] [s]ervice through two 2800 kVa
transformers . . . with totalized secondary metering.” Id. at 276-77. The
Authorization also stated that the United States would pay Dominion a
12
“monthly facilities charge” of $54,655.77 for providing those “facilities” and
the government would pay Dominion an added amount each month for the
electricity supplied and delivered to Fort Monroe. Id. at 279. This
Authorization under the Areawide Contract filled the gap left by the
terminated CLIN 7 of the Utility Services Contract by compensating
Dominion for electricity plus certain utility services. The United States
remained Dominion’s customer.
After the Utility Services Contract termination, Dominion and the
government negotiated Dominion’s compensation for the termination
through a series of amended termination settlement proposals, two certified
claims, and an appeal to the Armed Services Board of Contract Appeals. The
United States and Dominion settled Dominion’s claims for net unrecovered
investments and settlement costs. The outstanding dispute between the
parties relates solely to the cost for future upgrades to metering, lighting, and
distribution on the Fort Monroe electrical system that Dominion believes it
must complete due to the termination of the “unregulated” contract.
The first transfer of real property from the United States back to
Virginia did not occur until 2013. By a quitclaim deed transferring a part of
the real property at Fort Monroe, the United States split ownership of the real
property at Fort Monroe between the United States and Virginia. Since that
time, the United States has transferred more Fort Monroe property to
Virginia. Virginia has also conveyed some of the property back to the United
States for use as a national monument. The United States and Virginia still
split ownership of the property as of the date of oral argument. Dominion
continues to own the Fort Monroe electrical system, and the United States
remains the customer of record for Dominion’s purposes.
Dominion takes the position that each of the foregoing events—the
termination of CLIN 7, the United States’ failure to reacquire the electrical
system, the United States exchanging property at Fort Monroe with Virginia,
and the possibility of multiple future customers at Fort Monroe
(governmental and non-governmental)—“caused Dominion to incur an
obligation under its Tariff (and per its T&Cs) to modify the [metering,
lighting, and distribution] to meet the same regulated standards applicable to
comparable systems serving Dominion’s regulated rate base.” Pl.’s Mot.
Summ. J. 9. To support this belief, plaintiff cites its obligation under Virginia
state law to provide reasonably adequate services and just rates to its
regulated rate base without preferential treatment as well as its internal
13
corporate policies and broader industry standards. See, e.g., id. at 9, 12, 23,
24. Notably, the United States, which remains Dominion’s customer at Fort
Monroe, has not ordered such work under the existing federal Areawide
Contract. Neither the parties’ briefing nor that of the amicus state that the
Fort Monroe Authority or other Virginia authority has ordered this work.
Dominion’s belief is that the upgrade work is an independent legal obligation
arising out of its status as a regulated utility company in Virginia and out of
its corporate policies.
Dominion and the Fort Monroe Authority have discussed a contract
between Dominion and the Fort Monroe Authority for utility services and
electricity at the Fort Monroe property; the goal is for the Fort Monroe
Authority to replace the United States as Dominion’s contracting partner.
Plaintiff is concerned, however, that any such future contract would not
compensate Dominion for its perceived obligation to upgrade facilities. The
Fort Monroe Authority is similarly concerned that Dominion will pass on the
cost of any upgrade work to Virginia. Dominion and the Fort Monroe
Authority’s negotiations have failed due to their belief that someone else,
preferably the United States, must first commit to pay for upgraded metering,
lighting, and distribution.
Defendant acknowledges that Dominion has chosen to spend
$240,000 to begin upgrades. The parties agree that the government did not
order the work nor did Dominion begin the work during performance of the
contract at bar. Dominion concedes that it has not completed its projected
upgrades. It estimates that the total cost of the upgrades, including the
amount already spent, will be approximately $13 million. Dominion filed suit
in this court in 2017 seeking payment for the cost of upgrading the metering,
lighting, and distribution at Fort Monroe.
DISCUSSION
To be clear at the outset, plaintiff is not making a claim for costs
incurred during the performance of the Utility Services Contract or for costs
already spent as part of the termination for convenience. Instead, plaintiff’s
various arguments flow from two assumptions: (1) Had the United States
allowed the Utility Services Contract to continue, plaintiff would not be
obligated to upgrade the metering, lighting, and distribution, because the
contract did not require those upgrades; alternatively, if those upgrades
became necessary during the life of the contract, the contract set out a process
for recouping that cost from the United States, a process no longer available
14
to plaintiff. And (2) the United States, by terminating CLIN 7 of the Utility
Services Contract, triggered an obligation—external to the Utility Services
Contract, found in Virginia state law and plaintiff’s corporate policies—for
Dominion to upgrade the metering, lighting, and distribution at Fort Monroe,
foisting onto plaintiff costs that it had not planned to expend at Fort Monroe.
Plaintiff advances five theories of liability under which the United
States must pay for the upgrades: (1) The upgrades are an allowable cost
under FAR 31.205-42(b) caused by the termination for convenience of the
Utility Services Contract. (2) The upgrade costs are fair compensation after
a termination for convenience under FAR 49.201. (3) The termination for
convenience of the Utility Services Contract was defective without such
payment. (4) Failing to pay for the upgrade costs constitutes a breach of the
Utility Services Contract. Plaintiff’s motion for summary judgment also
introduced a new theory that, (5) because the termination of the Utility
Services Contract was partial, plaintiff is entitled to an equitable adjustment
for its increased cost of performance under the other two contract line items.
In Count I, plaintiff argues that the cost to upgrade the metering,
lighting, and distribution will be attributable to the contract as unavoidably
continuing after termination. It estimates the cost to be $13 million. Plaintiff
relies on FAR 31.205-42(b) Costs Continuing After Termination:
Contract terminations generally give rise to the incurrence of
costs or the need for special treatment of costs that would not
have arisen had the contract not been terminated. The
following cost principles peculiar to termination situations are
to be used in conjunction with the other cost principles in
subpart 31.2: . . .
(b) Costs continuing after termination. Despite all reasonable
efforts by the contractor, costs which cannot be discontinued
immediately after the effective date of termination are
generally allowable. . . .
Despite citing subsection -42(b), plaintiff does not argue that
Dominion could not discontinue the upgrade work immediately after
termination. In fact, plaintiff insists that, under the Utility Services Contract,
this specific upgrade work was not required, and it concedes that the work
was not underway during the pre-termination period. Instead, plaintiff relies
on the introductory language: “costs that would not have arisen had the
15
contract not been terminated.” Id. Plaintiff contends that, had the United
States not ended the contract some forty-three years early or had the United
States reacquired the electrical system from plaintiff, Dominion would not
face an obligation to upgrade the metering, lighting, and distribution. When
the government terminated early, plaintiff argues, the termination subjected
Dominion to the broader requirements of state law and Dominion’s policies
to upgrade the system. Therefore, “but for” the termination, the upgrade costs
would not have arisen.
We address below the question whether plaintiff has established its
critical assumption that termination altered its legal obligation to upgrade the
Fort Monroe electrical system. For the moment, we will accept that
assumption. Even accepting plaintiff’s “but for” argument, however, the
fundamental problem is that these upgrade costs are unconnected to the work
Dominion performed under the Utility Services Contract. They are not
contract costs continuing after termination. They are costs that Dominion will
incur, if at all, because of separate contracts or obligations. They have not
been nor will they be performed in satisfaction of the terminated work.
Plaintiff bought an outdated electrical system. The parties agreed at
oral argument that plaintiff has owned the system since 2005 and that the
termination did not interrupt that ownership. Dominion knew prior to
purchase that the system did not meet Dominion’s “regulated standard”—
whether internally imposed or imposed by law—for a modern electrical
system as far as metering, lighting, and distribution are concerned. Plaintiff
paired that risky purchase with a services contract that it believed would last
at least fifty years, hoping to spread out the cost of repairs over many
decades. Yet the services contract that plaintiff agreed to did not provide
Dominion with any guarantee that the United States would reacquire the
system at the end of the contract term or upon termination and, critically,
allowed the United States to end the utility services part of the bargain at its
own convenience. Moreover, the Utility Services Contract did not bargain
for, much less guarantee, that the United States would pay for such an
upgrade prior to or after termination.
The cases Dominion relies on highlight the difference between the
costs arising after termination that are attributable to the contract and the
costs Dominion seeks in this case. In Nolan Bros., Inc., v. United States, for
instance, the contractor wore out the tires on its equipment performing an
excavation contract. 194 Ct. Cl. 1, 22 (1971). The contractor claimed the
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price of new tires following the termination. The Court of Claims held, “The
expense involved in replacing tires worn out as a result of [operating
plaintiff’s equipment] on the job during the pre-termination period was
[recoverable], irrespective of whether the actual replacement of such tires
occurred during the pre-termination period or after the work under the
contract was terminated.” Id. Dominion points to Nolan Brothers as an
example of a recoverable cost that arose after termination. The difference
between Nolan Brothers and Dominion’s claim, however, is that the Nolan
Brothers contractor wore out its tires while performing the contract. The
Utility Services Contract did not include the costs that Dominion claims here,
because, with the United States as its contracting partner on the
“unregulated” contract, Dominion did not have its alleged legal obligation to
upgrade the metering, lighting, and distribution. Plaintiff did not perform any
of the upgrade work, what little it has done so far, during contract
performance. Dominion is thus not looking to replace something worn out in
the performance of the contract but instead is looking to have a former
customer pay for an upgrade that a later customer might demand.
Plaintiff also cites White Buffalo Construction, Inc. v. United States,
in which this court held that the United States must pay the contractor “fair
compensation for any additional repairs occurring after termination that were
necessitated by the contract work.” 52 Fed. Cl. 1, 11 (2002). In that case, the
contractor used its equipment during performance of the contract. Here,
Dominion concedes that the Utility Services Contract did not require
upgrading the metering, lighting, and distribution system and that it did not
undertake the work during the performance period.
Plaintiff’s focus on a single line in FAR 31.205-42, “costs that would
not have arisen had the contract not been terminated,” is unpersuasive
because section -42(b) clearly assumes a connection between the substance
of the contract and the claimed cost. Furthermore, the termination clause,
FAR 52.249-2, lists categories of costs predicated on some connection
between the performance of the contract and the cost arising or continuing
after termination. For instance, the termination clause particularly lists “costs
incurred in the performance of the work terminated” and “the reasonable
costs of settlement of the work terminated,” such as costs necessary to
preserve or dispose of termination inventory. FAR 52.249-2(g)(2)-(3).
Plaintiff does not cite these categories or any other in the termination clause
in its complaint or briefing, perhaps because these categories also require
some nexus between the work anticipated under the contract and the costs
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plaintiff claims. The costs claimed here instead relate to work that Dominion
may complete, on a system that Dominion owns, in performance of a future
contract.
Our foregoing assumption that the termination of CLIN 7 triggered a
legal obligation for plaintiff to upgrade the metering, lighting, and
distribution at Fort Monroe is, in any event, not established. Plaintiff
contends that by terminating CLIN 7 without reacquiring the system, the
United States ended the “unregulated” status of the Fort Monroe electrical
system and thrust the system into Dominion’s regulated rate base. Plaintiff’s
citations to state law and its corporate policies only generally discuss
Dominion providing reasonably adequate service to similarly situated
customers, however. As of September 15, 2011, and for at least two years
thereafter, Fort Monroe remained federal property. The United States has at
all points remained Dominion’s customer regarding electricity and utility
services at Fort Monroe, first under the Utility Services Contract and now
under the Areawide Contract. It is unclear how the services Dominion
provides to the United States became automatically subject to the regulations
governing Dominion’s broader rate base upon termination of CLIN 7.
Plaintiff has not established a cause-and-effect relationship between the
termination and plaintiff’s perceived obligation to perform upgrade work.
In addition to the termination itself, plaintiff argues that splitting the
real property ownership triggered a requirement found in its tariff (or
elsewhere in state law or its corporate policies) to upgrade metering, lighting,
and distribution. Splitting the property did not occur until at least two years
after the termination, however. The termination of CLIN 7 and the transfer
of property between the United States and Virginia were unrelated
transactions. Plaintiff also argues that the change from a single-customer,
contiguous federal property to a multi-customer property triggered its
obligation to upgrade, even though plaintiff’s customer has remained the
United States under the Areawide Contract. Its multi-customer problem is
largely conjectural at this point. Moreover, as discussed at oral argument, the
United States, as the customer under the Areawide Contract, has not ordered
this upgrade work. Any future upgrade work would be requested by the Fort
Monroe Authority, a separate state government entity with which plaintiff
may negotiate a contract in the future.
None of plaintiff’s theories, taken together or separately, establish that
plaintiff has an existing legal obligation to upgrade the metering, lighting,
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and distribution on the Fort Monroe electrical system. More importantly,
even if such a requirement exists, plaintiff’s arguments do not tie that
obligation to what the United States bargained for under Utility Services
Contract CLIN 7 or to the termination itself. Because plaintiff cannot connect
its anticipated upgrade work to the Utility Services Contract, the court denies
plaintiff’s motion for summary judgment on Count I and grants the
government’s cross-motion on that count.
Plaintiff also argues, in Count II, that it is only fair that defendant pay
for the estimated cost to upgrade the metering, lighting, and distribution.
Plaintiff relies on FAR 49.201(a), which states, “A settlement should
compensate the contractor fairly for the work done and the preparations made
for the terminated portions of the contract, including a reasonable allowance
for profit.” Of course, the aim of a termination settlement is to compensate
the contractor fairly, but FAR Part 49 does not offer a standalone category
for the upgrade costs. As FAR 49.201(a) points out, the termination
settlement connects to the work contemplated under the original contract or
to work triggered by termination. To the extent that plaintiff argues that it
was unfair to terminate a contract that called for 50 years of performance,
plaintiff has shown no basis in the contract for that argument, particularly in
view of the termination for convenience clause. Plaintiff cannot shoehorn
entitlement to costs for upgrading metering, lighting, and distribution that are
disconnected from its work under the Utility Service Contract into this
general FAR provision. We thus deny plaintiff’s motion for summary
judgment on Count II and grant the government’s cross-motion.
In Count III, plaintiff alternatively seeks $13 million for upgrading
the Fort Monroe electrical system on a theory of “Defective Termination.”
Plaintiff theorizes that terminating the Utility Services Contract also
terminated the Bill of Sale and that the United States unilaterally forced the
electrical system on Dominion in the termination process. Dominion’s
argument has no basis in fact or law. The termination notices were legally
sufficient. Plaintiff conceded at oral argument that it has, at all relevant times,
owned the electrical system, and it did not distinguish between pre-
termination and post-termination ownership.
Even if plaintiff had not made this concession, nothing in the Utility
Services Contract, the Bill of Sale, or the Easement suggest that a termination
of the Utility Services Contract CLIN 7 also revoked or voided the property
transfer from the United States to plaintiff. The contract explains that the
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electrical system sale is not an acquisition and is not subject to the FAR. The
contract establishes that the United States owned the system until the parties
executed the Easement, at which point plaintiff owned the system. Both the
Bill of Sale and the Easement confirm that, upon execution of those
documents, ownership of the system transferred to plaintiff. The fact that the
Bill of Sale was “subject to” the contract does not suggest that termination
of CLIN 7 unwound the sale of the electrical system to defendant; the
contract provided an option for reacquisition that the government declined to
exercise. Nothing in the Easement suggests that the termination of CLIN 7
automatically revoked the conveyance or the access rights granted in that
document either. The parties’ behavior in the termination settlement process
reflected this reality: they decreased any settlement amount by the remaining
purchase price. Dominion’s theory does not reflect the undisputed facts of its
transaction with the government nor does it seek relief consistent with its
own theory. We therefore grant the government’s motion on Count III and
deny plaintiff’s cross-motion.
In Count IV, plaintiff alternatively seeks $13 million for upgrading
the Fort Monroe electrical system because defendant breached the contract
by refusing to pay for the metering, lighting, and distribution costs during the
termination settlement process. The contract allowed the government to
terminate the contract for convenience. The termination clause set out the
procedure for determining a settlement and incorporated the cost principles
in FAR Part 31 to aid in determining the settlement amount. After the
government notified Dominion of the upcoming termination through two
termination notices, the government went through the termination settlement
proposal process outlined in the termination clause. The government thus
fulfilled its duties under the termination for convenience clause. The fact that
the government disagreed with Dominion on what the government owes
Dominion under that clause is not a breach of the Utility Services Contract.
Because plaintiff has not identified a duty set out in the Utility Services
Contract that the government breached, we deny plaintiff’s motion and grant
the government’s cross-motion.
Finally, in its motion for summary judgment, plaintiff raised a novel
theory of recovery, not found in its complaint (original or amended) or its
claims presented to the contracting officer, that Dominion was entitled to an
equitable adjustment for increased costs of performance based on the partial
termination of the Utility Services Contract, specifically CLIN 7 Fort
Monroe. See FAR 52.249-2(l). Plaintiff claims $13 million for metering,
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lighting, and distribution costs, this time as relief for increased costs of
performance. In its cross-motion and response, defendant moved for the
court to dismiss this claim, because plaintiff did not raise a claim for
equitable adjustment before the contracting officer nor in its complaints.
As an initial matter, plaintiff did not move to amend its complaint to
raise this distinct claim prior to summary judgment. The court will not
consider a claimed raised after ample time to amend the complaint and when
defendant did not have an opportunity to prepare for the claim during
discovery. Moreover, plaintiff did not submit a claim to the contracting
officer for an equitable adjustment for increased costs of performance due to
a partial termination under FAR 52.249-2(l). The court lacks jurisdiction to
entertain a claim for costs that plaintiff did not raise to the contracting officer.
41 U.S.C. §§ 7101-09, 7103 (2018). Plaintiff’s theory is new, as is the
category of relief it seeks and the operative facts relating to costs increasing
under the other two contract line items. See K-Con Bldg. Sys., Inc. v. United
States, 778 F.3d 1000, 1005 (Fed. Cir. 2015). Thus, plaintiff’s new claim
must be dismissed for lack of jurisdiction.
CONCLUSION
In sum, we deny plaintiff’s motion for summary judgment on Counts
I, II, and IV. We grant the government’s cross-motion for summary judgment
on Counts I, II, and IV. We also grant the government’s motion for summary
judgment on Count III and deny plaintiff’s untimely request for summary
judgment on that count. We dismiss the equitable adjustment claim, to the
extent it can be characterized as such, raised in plaintiff’s motion for
summary judgment. The Clerk is directed to enter judgment for defendant.
No costs.
s/Eric G. Bruggink
ERIC G. BRUGGINK
Senior Judge
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