Fluor Federal Solutions, Inc.

ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of - )

)

Fluor Federal Solutions, Inc. ) ASBCA No. 62343

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Under Contract No. N69450-12-D-7582 )

APPEARANCES FOR THE APPELLANT: John S. Pachter, Esq.

Jennifer A. Mahar, Esq.

Kathryn T. Muldoon Griffin, Esq.

Smith Pachter McWhorter PLC

Tysons Corner, VA

APPEARANCES FOR THE GOVERNMENT: Craig D. Jensen, Esq.

Navy Chief Trial Attorney

Russell A. Shultis, Esq.

Patricia Walter, Esq.

Julie Ruggieri, Esq.

Jerry Kim, Esq.

Trial Attorneys

OPINION BY ADMINISTRATIVE JUDGE WITWER ON THE PARTIES’

CROSS-MOTIONS FOR SUMMARY JUDGMENT

This appeal involves a dispute regarding the validity of the government’s

extension of services under Federal Acquisition Regulation (FAR) 52.217-8,

OPTION TO EXTEND SERVICES (NOV 1999). The government unilaterally

extended appellant’s services under this clause while appellant was performing the

final option year of the contract under protest—an option year that the Board later

adjudicated to be unenforceable. Fluor Fed. Sols., LLC, ASBCA No. 61353,

19-1 BCA ¶ 37,237. The narrow question before the Board in this appeal is whether

the government can extend a contractor’s performance under FAR 52.217-8 after an

ineffective attempt to exercise an option year. Both parties seek summary judgment

on this question. As detailed below, we grant summary judgment in favor of appellant

and sustain the appeal. The government’s motion is denied.

STATEMENT OF FACTS FOR PURPOSES OF THE MOTIONS

The following facts are undisputed or uncontroverted.

The Contract

In December 2011, the Naval Facilities Command Southeast (the Navy or

government) awarded Flour Federal Solutions, Inc. (Fluor or appellant) contract

No. N69450-12-D-7582 to provide regional base operations support at four Navy

installations in the Jacksonville, Florida area (R4, tab 17 at GOV12440, 12443,

12459). The contract contemplated a period of performance of a base year,

four option years, and three award option years, for a period of performance not

to exceed a total of 96 months (id. at GOV12450).

Central to the dispute here, the contract incorporated FAR 52.217-8, OPTION

TO EXTEND SERVICES (NOV 1999) (R4, tab 17 at GOV12472). This clause

allows the government to extend a contractor’s services for a period up to six months.

The full text of the clause incorporated in the contract at issue in this appeal provides,

as follows:

The Government may require continued performance of any

services within the limits and at the rates specified in the

contract. These rates may be adjusted only as a result of

revisions to prevailing labor rates provided by the Secretary

of Labor. The option provision may be exercised more than

once, but the total extension of performance hereunder shall

not exceed 6 months. The Contracting Officer may exercise

the option by written notice to the Contractor within

30 Calendar days.

(Id.)

The contract also incorporated, by reference, the standard disputes clause,

FAR 52.233-1, DISPUTES (JUL 2002), as well as FAR 52.233-1, DISPUTES

(JUL 2002)—ALTERNATE 1 (DEC 1991) (R4, tab 17 at GOV12468). Relevant

here, the alternate disputes clause provides that, in the event of a contractual dispute,

“[t]he Contractor shall proceed diligently with performance of this contract,

pending final resolution of any request for relief, claim, appeal, or action arising

under or relating to the contract, and comply with any decision of the Contracting

Officer.” FAR 52.233-1(i).

Performance of the contract began on July 1, 2012, and the Navy exercised all

four of its non-award options. Fluor Fed. Sols., LLC, 19-1 BCA ¶ 37,237 at 181,249.

2

Option year 4 ran from July 1, 2016 to June 30, 2017. Id. The Navy did not exercise

award option years 1 or 2, and deleted them from the contract in accordance with the

contract’s award option plan. Id.

The Navy’s Exercise of Award Option Year 3 and ASBCA No. 61353

On June 28, 2017, mere days prior to the expiration of option year 4,

the Navy issued a unilateral modification purporting to exercise award option year 3

with a 12-month period of performance from July 1, 2017 through June 30, 2018

(R4, tab 18.193). Fluor objected to the modification, contending that the Navy’s

exercise of award option year 3 was invalid and contrary to the terms of the contract.

Fluor Fed. Sols., LLC, 19-1 BCA ¶ 37,237 at 181,249-50. (See also ASUMF ¶ 4a;

gov’t resp. to ASUMF at ¶ 4a; GSUMF ¶ 12) 1 Fluor informed the Navy that it would

perform award option year 3 under protest. (R4, tab 22; ASUMF ¶ 4a; gov’t resp. to

ASUMF ¶ 4a; GSUMF ¶ 13)

In July 2017, Fluor submitted a claim to the contracting officer for its allowable

costs, plus a reasonable profit, for the work performed or anticipated to be performed

under award option year 3 (R4, tab 23). Fluor appealed the deemed denial of its claim

to the Board, which was docketed as ASBCA No. 61353. In January 2019, the Board

granted summary judgment in Fluor’s favor, holding that the Navy’s exercise of award

option year 3 was unenforceable. Fluor Fed. Sols., LLC, 19-1 BCA ¶ 37,237

at 181,253. Familiarity with our prior decision is presumed.

The Navy’s Exercise of the Option to Extend Services Under FAR 52.217-8

In April 2018, while Fluor was performing award option year 3 under protest

and subject to a complete reservation of rights, the Navy informed Fluor of its intent to

extend Fluor’s services by six months under FAR 52.217-8 (R4, tab 30). On June 6,

2018, the Navy issued unilateral Modification No. P00211, which purported to extend

Fluor’s performance under FAR 52.217-8 for an additional six months through

December 31, 2018 (R4, tab 18.211 at GOV00025651). Fluor objected to the Navy’s

unilateral modification and represented that Fluor’s continued performance of the

contract was subject to protest (R4, tab 35).

In October 2019, Fluor submitted a claim to the contracting officer for its

allowable costs, plus a reasonable profit, for the work performed during the six-month

extension. (R4, tab 19 at GOV00025820-23). Fluor’s October 2019 claim is the

1

“ASUMF” refers to the Appellant’s Statement of Undisputed Material Facts.

“Gov’t resp. to ASUMF” refers to the Government’s Response to Appellant’s

Statement of Material Facts. “GSUMF” refers to the Government’s Statement

of Undisputed Material Facts.

3

subject of the dispute here. In its claim, Fluor contended that the Navy’s unilateral

extension of Fluor’s services was invalid because the Navy had failed to properly

exercise award option year 3. Fluor asserted that the Navy’s failure to properly

exercise the option year resulted in the expiration of the contract on June 30, 2017.

In January 2020, Fluor appealed the deemed denial of its claim to the Board,

which was docketed as ASBCA No. 62343. In its complaint, Fluor advances three

theories, in the alternative, to support its claim (compl. at 8-9). In Count I, Fluor

alleges that the Navy materially breached the contract in extending the contract.

In Count II, Fluor alleges that the Navy breached its implied duty of good faith and

fair dealing in extending the contract. In Count III, Fluor alleges that the Navy

constructively changed the contract in extending the contract. Fluor moves for

summary judgment on Count I, or in the alternative, Count III (app. memo. at 6).

The Navy cross-moves for summary judgment. The matter before us has been fully

briefed, with both parties submitting opening motions, opposition briefs, replies in

support of their motions, and sur-replies. 2

DECISION

I. Standards for Summary Judgment

As both parties state in their respective motions, summary judgment is proper

when there is no genuine dispute as to any material fact, and the moving party is

entitled to judgment as a matter of law. Celotex Corp. v. Catrett, 477 U.S. 317,

322-23 (1986). Here, the parties have asked us to determine whether or not the

government’s extension of Fluor’s services under FAR 52.217-8 was effective.

We have not found any facts material to the resolution of this question to be in

genuine dispute. Moreover, the parties assert that the question presented involves a

matter of contract interpretation. (App. memo. at 4; gov’t cross-mot. and opp’n at 7).

Contract interpretation is a matter of law, readily resolved by summary judgment.

Kellogg Brown & Root Servs., Inc. v. Sec’y of the Army, 973 F.3d 1366, 1370 (Fed.

2

There were six dispositive filings: (1) Fluor’s Motion for Partial Summary Judgment

dated April 17, 2020, which included a memorandum in support of the motion

(“app. memo.”); (2) the Navy’s Cross-Motion and Opposition dated May 18,

2020 (“gov’t cross-mot. and opp’n”); (3) Fluor’s Reply and Opposition dated

June 3, 2020 (“app. reply and opp’n”); (4) the Navy’s Reply dated July 2, 2020

(“gov’t reply”); (5) Fluor’s Sur-reply dated July 13, 2020 (“app. sur-reply”);

and (6) the Navy’s Sur-reply dated July 27, 2020 (“gov’t sur-reply”).

With respect to the parties’ sur-replies, the Board grants Fluor’s Motion for

Leave to File a Sur-reply dated July 13, 2020, and denies the Navy’s Motion to

Strike Sur-reply filed July 14, 2020. In reaching the conclusions set forth in our

decision here, we have considered the sur-replies filed by both parties.

4

Cir. 2020); Gen. Dynamics – Nat’l Steel and Shipbuilding Co., ASBCA No. 61854,

21-1 BCA ¶ 37,793 at 183,477. Because the Navy seeks to enforce the terms of the

option, the Navy has the burden of proving that the option was properly exercised.

Griffin Servs., Inc., ASBCA Nos. 52280, 52281, 02-2 BCA ¶ 31,943 at 157,803.

II. Contentions of the Parties

Fluor argues that, because the Board found the Navy’s exercise of award option

year 3 to be unenforceable, the contract expired by operation of law on June 30, 2017

(app. memo. at 5). Once the contract ended, Fluor maintains that the Navy no longer

had an option under FAR 52.217-8 to require Flour to continue to provide services

(id. at 4-5). Accordingly, the Navy’s subsequent issuance of Modification No. P00211

on June 6, 2018—nearly 12 months after the contract ended—purporting to extend

Fluor’s services for an additional six months was invalid and unenforceable (id. at 5).

The Navy responds that, notwithstanding its invalid exercise of the award

option year, it retained the right to extend Fluor’s performance under FAR 52.217-8.

Citing the decisions of the United States Court of Appeals for the Federal Circuit in

Arko Executive Services, Inc. v. United States, 553 F.3d 1375 (Fed. Cir. 2009), and

Alliant Techsystems, Inc. v. United States, 178 F.3d 1260 (Fed. Cir. 1999), the Navy

claims that the government may extend a contractor’s performance beyond the

expiration of the contract provided it does so while the contractor’s performance is

continuing. The Navy reasons that, because Fluor was performing at the time the

Navy issued the modification (albeit under protest and pursuant to an award option

that the Board determined to be unenforceable), the Navy possessed the authority to

extend Fluor’s services under FAR 52.217-8. As an additional matter, the Navy also

argues that, not only did it possess the authority to extend Fluor’s performance under

FAR 52.217-8, it exercised that authority properly by providing timely notice to Fluor

and exercising the option in accordance with the terms of the clause. For the reasons

below, we grant Fluor’s motion and deny the Navy’s motion.

III. The Navy’s Extension of Services Under FAR 52.217-8 Was Invalid

The question presented by the parties is straightforward: Whether the

government can extend a contractor’s performance under FAR 52.217-8 after an

ineffective attempt to exercise an option year. The answer is also straightforward: No.

As a result of the government’s failure to properly exercise the option year, the contract

expired. The language of FAR 52.217-8 incorporated here does not provide a

mechanism to resurrect the parties’ obligations under an expired contract.

In Fluor Federal Solutions, LLC, 19-1 BCA ¶ 37,237, we held that the Navy’s

exercise of the award option year was unenforceable. Id. at 181,253. The effect of the

Board’s decision is that the contract expired by operation of law on June 30, 2017,

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i.e., the date before the invalid option period began. See e.g., White Sands Constr.,

Inc., ASBCA Nos. 51875, 54029, 04-1 BCA ¶ 32,598 at 161,308 (holding that, when

the government fails to properly exercise an option, the contract comes to an end the

day prior to the start of the invalid option period); Grumman Technical Servs., Inc.,

ASBCA No. 46040, 95-2 BCA ¶ 27,918 at 139,317 (same); Lear Siegler Inc., Mgmt.

Servs. Div., ASBCA No. 30224, 86-3 BCA ¶ 19,155 at 96,795 (same). See also

Alliant Techsystems, Inc. v. United States, 178 F.3d 1260, 1275 (Fed. Cir. 1999)

(“As a result of the [government’s] failure to exercise the option in accordance with

its terms[,] no bilateral contract for the purchase of property came into existence”)

(quoting United States v. T.W. Corder, Inc., 208 F.2d 411, 413 (9th Cir. 1953));

id. (citing Uniq Computer Corp. ex rel. United States Leasing Corp. v. United States,

20 Cl. Ct. 222, 231-32 (1990); 3 ERIC MILLS HOLMES, CORBIN ON CONTRACTS § 11.8

(1996)). Accordingly, contrary to the Navy’s assertion that its invalid exercise of

the award option year “did not sever the parties’ contractual relationship” (gov’t

cross-mot. and opp’n at 18), that is exactly the result. Once the contract expired,

any subsequent attempt by the Navy to extend Fluor’s services under FAR 52.217-8

was legally ineffective. 3

We faced a similar situation in Griffin Servs., Inc., 02-2 BCA ¶ 31,943.

In Griffin, the government extended the contract three times under FAR 52.217-8,

for a total of six months. The contractor received notice of the first two extensions

before the pertinent performance period expired. With respect to the third extension,

however, the government failed to show that the contractor was timely notified of the

extension. Rather, notice of the third option was received after the contract expired.

The contractor performed the third option and filed a claim for constructive change.

In our decision, the Board concluded that the government properly exercised the first

two options. Regarding the third option, the Board found that the option was not

validly exercised because it was received by the contractor after the contract expired.

Griffin Servs., Inc., 02-2 BCA ¶ 31,943 at 157,805. We held that the government must

“deliver the written exercise of the option to the appellant before expiration of the

option period, in order for the option to be timely exercised.” Id. (emphasis added).

Like the government in Griffin, the Navy did not exercise the option to extend Fluor’s

services before the expiration of the contract period. Accordingly, like in Griffin, we

conclude that the government’s failure to exercise the option to extend services under

FAR 52.217-8 prior to the expiration of the contract renders the option ineffective.

3

Although the Navy disagrees with the contention that the contract expired on

June 30, 2017, contending instead that the contract did not expire until a year

later on June 30, 2018 (gov’t resp. to ASUMF ¶¶ 5-6; gov’t cross-mot. and

opp’n at 11), the Navy’s disagreement does not establish the existence of

disputed facts. Rather, the effect of the government’s failure to properly

exercise an option is a question of law, not a triable issue of fact.

6

The Board’s decisions in White Sands Constr., Inc., 04-1 BCA ¶ 32,598,

and Grumman Technical Servs., Inc., 95-2 BCA ¶ 27,918, are also instructive.

In White Sands, the contract contemplated a base year and four option years.

The government exercised all four option years under FAR 52.217-9, OPTION TO

EXTEND THE TERM OF THE CONTRACT (MAR 1989). The contractor alleged

that the government improperly exercised the second option year resulting in the

expiration of the contract and the invalidation of all subsequent option years.

The Board agreed, holding that the “exercise of Option II was therefore ineffective,

the contract came to an end . . . and there were no options to exercise in [subsequent

years].” White Sands Constr., Inc., 04-1 BCA ¶ 32,598 at 161,308. The Board

concluded that the contractor was entitled to an equitable adjustment for the invalid

option years.

Likewise, in Grumman, the contract contemplated a base year and four options

years. The government exercised the first two option years under FAR 52.217-9.

The contractor alleged that the government improperly exercised the first option year.

The Board agreed and summarized the impact of such a finding, as follows: “Since

the [first] option exercise was invalid, the contract came to an end . . . and there

remained no option to exercise[.]” Grumman Technical Servs., Inc., 95-2 BCA

¶ 27,918 at 139,317. The Board further explained that the government’s “purported

exercise of [the second option year] was, therefore, of no effect.” Id. The Board’s

decisions in White Sands and Grumman clearly articulate the legal result of an

invalidly exercised option, namely that the contract expires and that any subsequently

exercised options are of “no effect.” 4

In sum, when the contract here expired, the Navy’s right to exercise the option

to extend services under FAR 52.217-8 expired with it. Consequently, the Navy’s

issuance of Modification No. P00211, nearly 12 months after the expiration of the

contract, is invalid and Fluor is entitled to an equitable adjustment for the six-month

extension of its services under a theory of constructive change. 5 For the above

reasons, we grant summary judgment in Fluor’s favor on Count III of the complaint.

4

The Navy seeks to distinguish Grumman (and presumably White Sands too) by

noting that it involved the exercise of successive option years under

FAR 52.217-9, not the exercise of the option to extend services under

FAR 52.217-8. (Gov’t cross-mot. and opp’n at 9-10, 15; gov’t reply at 7-8)

We do not find the distinction to be relevant under the circumstances presented

here and the Navy offers no rationale for us to treat the two FAR clauses

differently. Once a contract expires, the government’s ability to extend the

contractor’s performance—through either FAR clause—expires as well.

5

Where a contractor continues performance of a contract at the direction of the

government following the government’s improper exercise of an option,

the contractor is entitled to reimbursement of its costs and reasonable profit

7

IV. The Federal Circuit’s Decisions Cited by The Navy Do Not Support the Navy’s

Position.

In an attempt to bolster its position that it retained the right to extend Fluor’s

services after the expiration of the contract, the Navy cites the Federal Circuit’s

decisions in Arko Executive Services, Inc., 553 F.3d 1375, and Alliant Techsystems,

Inc., 178 F.3d 1260. The Navy’s reliance on these decisions is misplaced.

A. The Federal Circuit’s Decision in Arko Addresses Legal Issues Not

Germane to This Appeal.

The Federal Circuit’s decision in Arko involved the interplay between

FAR 52.217-8 and FAR 52.217-9. The Federal Circuit held that the government may

properly invoke FAR 52.217-8 to extend services beyond the maximum contract term

contemplated in FAR 52.217-9. Arko, 553 F.3d at 1381.

The contract in Arko contemplated a base year and four option years,

which Arko fully performed. Id. at 1376-77. Before the end of the last option year,

the government extended Arko’s performance under FAR 52.217-8. Id. at 1377, 1379.

After completing the contract under protest, Arko submitted a claim and later sued in

the United States Court of Federal Claims, asserting that the government could not use

FAR 52.217-8 to extend performance beyond the maximum contract term specified in

FAR 52.217-9, which in this case was five years. Id.

On appeal, the Federal Circuit affirmed the trial court’s grant of summary

judgment for the government. The Court rejected Arko’s argument that FAR 52.217-8

is limited by the language in FAR 52.217-9 identifying the maximum length of the

contract. Id. at 1381 (“We hold that the limitation of the contract duration to five years

by [FAR 52.217-9] does not preclude extensions beyond five years pursuant to FAR

52.217-8”). Instead, the contract duration established in FAR 52.217-9 applies only to

extensions of the base period by options exercised under that clause. Id. at 1380.

In short, the Court held that the government may use FAR 52.217-8 to extend

performance beyond the term of the contract.

under a theory of constructive change. See e.g., Lockheed Martin IR Imaging

Sys. Inc. v. West, 108 F.3d 319, 320 (Fed. Cir. 1997); Varo, Inc., ASBCA

No. 47945, 96-1 BCA ¶ 28,161; United Food Servs., Inc., ASBCA No. 43711,

93-1 BCA ¶ 25,462; Holly Corp., ASBCA No. 24975, 83-1 BCA ¶ 16,327;

Gen. Dynamics Corp., ASBCA No. 20882, 77-1 BCA ¶ 12,504; TECOM, Inc.,

IBCA No. 2970 a-1, 95-2 BCA ¶ 27,607. But see White Sands Constr., Inc.,

04-1 BCA ¶ 32,598 (sustaining claim for breach of contract where government

invalidly exercised option).

8

Relying upon Arko, the Navy argues, in the matter pending before us, that “had

the Navy properly exercised each option and extended the contract term for the full

96 months [permitted under the contract], the Navy could have extended Fluor’s

performance [through FAR 52.217-8] for an additional 6 months and received Fluor’s

services for 102 months, notwithstanding the undisputed 96-month limitation option

years” (gov’t cross-mot. and opp’n at 13). The hypothetical situation laid out by the

Navy, however, is not what we are presented with here.

Clearly, as the Federal Circuit established in Arko, the government, under

FAR 52.217-8, may extend performance beyond the contract term. That, however, is

not the question presented here. 6 Fluor does not argue that the Navy’s use of FAR

52.217-8 was improper because it extended performance beyond the originally

contemplated contract term (i.e., 96 months) or beyond the expiration of the contract

(i.e., June 30, 2017) (app. reply and opp’n at 14). 7 Had Fluor raised such an argument,

the Federal Circuit’s decision in Arko would be relevant.

Instead, as explained above, Fluor contends (and we agree) that the government

may not invoke FAR 52.217-8 after the contract has expired. The Federal Circuit in

Arko did not address this question (and did not need to) because the Court determined

that the government timely exercised its contractual right before the expiration of the

contract. Arko, 553 F.3d at 1377-79. Thus, contrary to the Navy’s contention (gov’t

cross-mot. and opp’n at 15), the Federal Circuit’s decision in Arko does not support the

premise that the government may exercise the option to extend after the expiration of

the contract.

In this regard, the Navy seems to conflate two concepts: (1) the contractor’s

performance of the option and (2) the government’s exercise of option. Although the

government may require the contractor to continue to perform after the expiration of

the contract term, the government may not invoke that right after the expiration of the

contract term. Put another way, the performance itself may (and often does) occur

after the expiration of the contract; the government’s exercise of its contractual right to

require continued performance, however, may not occur after the expiration of the

contract. Here, the Navy’s exercise of the option to extend Fluor’s services was

ineffective because it occurred nearly 12 months after the expiration of the contract.

6

As an aside, we also note that the facts in the Navy’s hypothetical differ from those

presented in this case, i.e., the Navy’s hypothetical presumes that the Navy

properly exercised each option.

7

Indeed, Fluor acknowledges that the Navy could have extended Fluor’s services

beyond the contract term had it elected to do so before the expiration of contract

on June 30, 2017 (app. reply and opp’n at 14). We agree, provided, of course,

that the Navy exercised its authority in strict compliance with the option

provision.

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B. The Federal Circuit’s Decision in Alliant Does Not Support the Navy’s

Theory That Continued Performance Under Protest Preserves the

Government’s Right to Extend Services.

The Navy’s reliance on the Federal Circuit’s decision in Alliant Techsystems,

Inc., 178 F.3d 1260, is equally unavailing. According to the Navy, the Alliant decision

“teaches that the contract in this case continued in force notwithstanding the Navy’s

unenforceable exercise of the Award Option” (gov’t cross-mot. and opp’n at 11).

The Navy’s theory is that the government may extend a contractor’s services under

FAR 52.217-8 “provided it does while the contractor’s performance is continuing,”

even if such performance is under protest and pursuant to the disputes clause of the

contract (id. at 1). Per the Navy, the only relevant inquiry is whether the contractor is

performing at the time the government exercises the option (id. at 11).

Applying this theory to the subject appeal, the Navy contends that, as a result of

Fluor’s continued performance of the award option year (which the Navy concedes

was required pursuant to the disputes clause), the Navy retained the authority to extend

such performance under FAR 52.217-8. (Id. 11-12, 18-19; gov’t reply at 5-6) In other

words, it was Fluor’s performance under protest that preserved the Navy’s ability to

exercise the option to extend under FAR 52.217-8. Nothing in the Federal Circuit’s

decision in Alliant supports this theory.

The contract in Alliant involved the demilitarization of bombs, and included

an option clause that permitted the government to increase the quantity of bombs

per month to be demilitarized. Alliant Techsystems, Inc., 178 F.3d at 1263.

The government attempted to exercise the option to increase the quantity of bombs,

but did so at a different rate than specified in the contract. Id. at 1264. Alliant took

the position that it was not required to perform because (a) the attempted exercise was

untimely and (b) the attempted exercise was at a quantity not contemplated by the

option clause. Id. Alliant sought relief from the Court of Federal Claims, which held

that the government’s exercise of the option was valid and that Aliant was required to

perform, albeit at a lower rate per month than ordered by the government. Id. Alliant

refused to perform the option quantities as revised by the trial court, and the

government terminated Alliant’s contract for default. Id. at 1263.

On appeal, the Federal Circuit reversed the Court of Federal Claims’ finding

that the exercise of the option had been valid, but held that Alliant was, nevertheless,

obliged to continue performing under the disputes clause of the contract until the

dispute was resolved. Id. at 1277. Although the Court agreed with the government

that the option was timely exercised, it agreed with Alliant that the delivery rate was

inconsistent with the option’s stated terms, thus rendering the attempted exercise of the

option invalid. Id. at 1263, 1275. The Federal Circuit explained that the “consequences

of such a deviation from the proper terms of the option exercise are that the option

10

clause imposed no obligations on Alliant and that its refusal to perform the option did

not constitute a breach of the option clause.” Id. at 1275.

Although the Federal Circuit found the government’s exercise of the option to

be invalid, the Court held that Alliant was obligated to perform under the disputes

clause of the contract. Id. at 1263. In this regard, the Court stated that a contractor’s

“obligations under the disputes clause are independent of its obligations under the

option clause.” Id. at 1277. The court concluded that the increased quantity of bombs

requested by the government was not a “drastic modification” such that it would be

construed as a cardinal change. Id. Thus, Alliant was not excused from performance.

The Federal Circuit explained, however, that, “[i]f the [trial] court had accepted

Alliant’s argument on the merits [i.e., found the option exercise invalid], it would have

held that Alliant had no obligation to perform under the option clause.” Id. at 1271.

“That ruling, unless stayed, would also have preempted any disputes clause

performance obligations.” Id.

In sum, Alliant stands for two well-established principles. First, where the

government fails to properly exercise an option, the contractor has no contractual

obligations under the option clause beyond those of the original contract. Id. at 1275.

Second, where the government fails to properly exercise an option, the disputes clause

may obligate a contractor to continue performance “until and unless it obtain[s] a court

[or Board] order excusing it from its performance obligation.” Id. at 1277. The

Federal Circuit’s decision in Alliant, therefore, provides ample validation for our

decisions in White Sands and Grumman (discussed above), in which we concluded that

the government’s failure to properly exercise an option results in the expiration of the

contract as a matter of law and renders any subsequently exercised options invalid

notwithstanding the contractor’s continued performance under protest.

Contrary to the Navy’s allegations, a contractor’s continued performance under

protest and pursuant to the disputes clause does not give the government carte blanche

to extend such performance. In fact, if we were to adopt the theory advanced by the

Navy, i.e., that a contractor’s performance under protest preserves the government’s

right to extend such performance, it would defeat the salutary purpose of the disputes

clause. As has been long-recognized, the disputes clause “protects an important

interest of the Government by permitting it to continue to receive needed supplies on

schedule, despite disputes which might arise during performance.” Dynamics Corp. of

Am. v. United States, 389 F.2d 424, 432-33 (1968) (footnote omitted). This important

governmental interest would be thwarted were we to rule that a contractor must refuse

to perform an option year it believes to be invalid in order to prevent the government

from further extending such performance under FAR 52.217-8.

In conclusion, neither Arko nor Alliant supports the Navy’s arguments in this

matter.

11

V. A Final Matter: The Strict Compliance Rule

To properly exercise an option, the government’s acceptance of that offer must

be unconditional and in exact accord with the terms of the contract being renewed.

New Eng. Tank Indus. of N.H., Inc. v. United States, 861 F.2d 685, 687 (Fed. Cir.

1988); 4737 Conner Co. v. United States, 65 F.App’x 274, 277 (Fed. Cir. 2003);

Griffin Servs., Inc., 02-2 BCA ¶ 31,943 at 157,803; Contel Page Servs., Inc., ASBCA

No. 32100, 87-1 BCA ¶ 19,540 at 98,734; Holly Corp., 83-1 BCA ¶ 16,327 at 81,164.

See also Civic Plaza Nat’l Bank v. First Nat’l Bank in Dallas, 401 F.2d 193,

198 (8th Cir. 1968). This requirement is strictly construed. Gen. Dynamics Corp.,

ASBCA No. 20881, 77-1 BCA ¶ 12,504 at 60,622 (citations omitted). Any attempt by

the government offeree to alter the conditions of the option will render the exercise

ineffective. Griffin Servs., Inc., 02-2 BCA ¶ 31,943 at 157,803 (citing Alliant

Techsystems, Inc., 178 F.3d at 1275); Grumman Technical Servs., Inc., 95-2 BCA

¶ 27,918 at 139,316 (citing Chem. Tech. Inc., 80-2 BCA ¶ 14,728); Contel Page Servs.,

Inc., 87-1 BCA ¶ 19,540 at 98,734. As the Navy recognizes (gov’t cross-mot. and

opp’n at 16), the government has the burden to prove that it exercised the option in

strict compliance with the option provision. Griffin Servs., Inc., 02-2 BCA ¶ 31,943

at 157,803.

The Navy argues in its cross-motion for summary judgment that, not only did it

retain the authority to extend Fluor’s performance under FAR 52.217-8 after the

contract expired, but also that it exercised that authority in strict compliance with the

terms of the option clause (gov’t cross-mot. and opp’n at 15-18). Fluor counters that,

even assuming for the sake of argument that the Navy’s rights under FAR 52.217-8

did not cease when the contract expired, the Navy’s purported extension of services

was not timely exercised and was not within the limits and rates specified in the

contract (app. reply and opp’n at 2). The parties devoted a significant amount of their

briefing to these issues. In view of our disposition above, however, we need not

address these arguments.

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CONCLUSION

Appellant’s motion for partial summary judgment as to Count III of the

complaint is granted. The government’s cross-motion for summary judgment is

denied. The appeal is sustained and remanded to the parties to negotiate quantum in

accordance with this decision.

Dated: August 8, 2022

ELIZABETH WITWER

Administrative Judge

Armed Services Board

of Contract Appeals

I concur I concur

RICHARD SHACKLEFORD J. REID PROUTY

Administrative Judge Administrative Judge

Acting Chairman Vice Chairman

Armed Services Board Armed Services Board

of Contract Appeals of Contract Appeals

I certify that the foregoing is a true copy of the Opinion and Decision of the

Armed Services Board of Contract Appeals in ASBCA No. 62343, Appeal of Fluor

Federal Solutions, Inc., rendered in conformance with the Board’s Charter.

Dated: August 9, 2022

PAULLA K. GATES-LEWIS

Recorder, Armed Services

Board of Contract Appeals

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