DISMISSED IN PART FOR LACK OF JURISDICTION;

DISMISSED IN PART FOR LACK OF JURISDICTION;

DENIED IN PART:

December 8, 2017

CBCA 5116

VSE CORPORATION,

Appellant,

v.

DEPARTMENT OF JUSTICE,

Respondent.

David I. Bledsoe and Jason P. Matechak, Alexandria, VA, counsel for Appellant.

Hilary L. Martinson and J. Todd Casey, Office of Chief Counsel, Bureau of Alcohol,

Tobacco, Firearms and Explosives, Department of Justice, Washington, DC, counsel for

Respondent.

Before Board Judges SHERIDAN, ZISCHKAU, and LESTER.

LESTER, Board Judge.

Appellant, VSE Corporation (VSE), has challenged a contracting officer’s decision

denying its request for an equitable adjustment to cover costs of extended storage of

fireworks under a contract with respondent, the Department of Justice (DOJ) (acting through

the Bureau of Alcohol, Tobacco, Firearms and Explosives (ATF)). Initially, VSE argued

that ATF constructively changed its contract by requiring the extended storage, with

damages running from the date that VSE started performance under its contract. In

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2

response, ATF filed a motion requesting summary relief in its favor on VSE’s claim. VSE

then filed an amended complaint adding two new counts – a breach of the duty of good faith

and fair dealing claim and a superior knowledge withholding claim – and a new commercial

impracticability legal theory to its constructive change count, after which the parties filed

supplemental briefs. For the reasons set forth below, we dismiss VSE’s appeal in part for

lack of jurisdiction and otherwise grant summary relief to ATF.

Statement of Uncontested Facts

I.

VSE’s Original Contract

In 2006, the Department of the Treasury (Treasury) awarded contract TOS-06-052

(Treasury contract) to VSE, through which VSE was to provide nationwide services

involving the transportation, storage, management, and disposition of seized or forfeited

property for several federal agencies, including ATF. Respondent’s Statement of

Uncontested Facts (RSUF) ¶ 2. In the course of criminal investigations, ATF sometimes

seizes property for forfeiture and evidentiary purposes, property that must be stored at least

until ATF obtains authorization through legal proceedings to dispose of it. Appeal File,

Exhibit 1 at 154-55.1

Under the contract, storage services were paid on a

cost-reimbursement basis, with costs calculated each month based upon the “per pound”

weight of seized property stored.

In July 2007, VSE took possession of what was known as the “Covington seizure,”

which was being stored in bunkers at a facility owned by Heritage Disposal & Storage,

L.L.C. (Heritage) in Alda, Nebraska. RSUF ¶¶ 3-4. The Covington seizure included more

than 800,000 pounds of 1.3G and 1.4G fireworks2 that were seized in what became part of

a criminal action in the United States District Court for the Eastern District of Kentucky,

docket number 08-CR-00056, against Sam Droganes, the original owner of the fireworks.

Id. ¶ 3. Heritage initially charged VSE $0.10 per pound per month for storage of the

Covington seizure, costs that VSE billed through to the Government under its costreimbursement contract.

1

Unless otherwise noted, all exhibits referenced in this decision are found in the

appeal file.

2

1.3G explosives, formerly known as Class B special fireworks, are display

fireworks that are designed to produce visible or audible effects for entertainment purposes

by combustion, deflagration, or detonation, while 1.4G explosives, formerly known as

Class C common fireworks, are consumer fireworks (such as firecrackers) intended for use

by the general public. See http://www.americanpyro.com/glossary-of-pyrotechnic-terms.

CBCA 5116

3

Although Mr. Droganes was in the business of selling 1.4G fireworks, he had no

license to sell 1.3G fireworks. Early testing showed that at least some fireworks that were

identified as 1.4G fireworks were, in fact, 1.3G fireworks. On July 10, 2008, Mr. Droganes

was indicted in the district court for the Eastern District of Kentucky for engaging in the

business of importing, manufacturing, transporting, and distributing explosive material

without an ATF license. The indictment contained a count seeking forfeiture of various

fireworks.

On October 7, 2008, Mr. Droganes filed a motion for return of the legal 1.4G

fireworks that ATF had seized. By order dated February 19, 2009, the district court directed

ATF to “[p]rovide Mr. Droganes with a time table for the return of the legal 1.4G

fireworks,” but gave the United States until March 11, 2009, to complete its testing and

segregation of the 1.3G and 1.4G fireworks. The court stated that, “although the segregation

and/or testing of the 1.4G and 1.3G seized fireworks has taken an inordinately long time,

because there are allegations of mislabeling of 1.4G fireworks, the United States is entitled

to retain all fireworks labeled as 1.4G until such time as required to complete its testing.”

Nevertheless, it further stated that, “given the length of time which has elapsed since the

July, 2007 seizure, the time deadlines for completion of segregation and testing must be

strictly adhered to” and, “[o]nce the testing and/or segregation is complete, all fireworks

determined to be 1.4G shall be returned to Defendant forthwith.”

On March 11, 2009, an Assistant United States Attorney (AUSA) informed Mr.

Droganes’ counsel by letter that, apparently because of water damage and other degradation

issues, the Covington seizure had become unfit to transport in interstate commerce, but that

“ATF has agreed to compensate your client for the wholesale price of those items which

should have been returned.” The parties then made efforts to establish a proper value, but

were ultimately unable to agree.

In May 2009, ATF asked VSE, for safety reasons, to “[r]e-palletize” the Covington

fireworks being stored at Heritage. Exhibit 24 at 748. That reconfiguration required more

storage space to be used, and Heritage, although it had a purchase order/subcontract in place

with VSE, increased its storage billing rate from $0.10 per pound to $0.195 per pound.

Applying that increased rate, Heritage began billing VSE approximately $170,000 each

month for storage of the Covington seizure.

On July 31, 2009, Mr. Droganes pled guilty to one of the counts in a superseding

indictment and, as part of his plea, agreed to forfeit the seized 1.3G fireworks, although the

parties disagreed about how to classify some of Mr. Droganes’ fireworks. Meanwhile, the

Covington seizure remained in storage at Heritage’s facility, subject to monthly payments

from VSE to Heritage and from ATF to VSE.

CBCA 5116

II.

4

The Solicitation for a Successor Contract

On December 20, 2009, ATF, now acting through DOJ, issued solicitation

DJA-09-S-000067 (amended March 12, 2010), seeking proposals for a new nationwide

contract for the transportation, storage, management, and disposition of certain types of

property that ATF and another agency, the Food and Drug Administration (FDA) within the

Department of Health and Human Services, might seize in the course of criminal

investigations. RSUF ¶ 1; Exhibit 1 at 155. Like the Treasury contract, the solicitation

indicated that the property to be stored would include alcohol, ammunition, explosives,

tobacco products, and firearms. Exhibit 1 at 154. It further indicated that the awardee

would “need to furnish secured storage facilities with adequate pallet/rack space capable of

meeting the storage volumes listed in [the Statement of Work].” Id. at 155. The resulting

contract would include a transition/phase-in period of up to 180 days, a base period of one

year, and nine one-year option periods. Id. at 133-49.

ATF provided historical workload data as part of the solicitation, estimating that,

typically, approximately ninety percent of seized property was ultimately destroyed and ten

percent of such property (usually alcohol, tobacco, or fireworks) was sold, although a

minimal amount of property would normally be returned to the original owner, retained by

the agency, or transferred to another agency or charitable organization. Exhibit 1 at 155,

240. ATF represented in the solicitation that, “[o]n average, disposition is expected to occur

within one year of seizure.” Id. at 240. It then identified the general locations at which

seized inventory was currently being stored under the predecessor contract, including the

Heritage location in Alda, Nebraska, and the number and size of the containers, trailers, or

pallets at each location. Id. at 241.

The solicitation provided that, “[i]f a substantial change from the estimated workload

occurs, the Contract may be modified to reflect the change or changes.” Exhibit 1 at 155.

Nevertheless, the solicitation indicated that ATF retained the discretion to elect “to manage

and dispose of some seized property in selected locations through mechanisms other than

this Contract” and that “the Government makes no warranties, either expressed or implied,

as to the future accuracy of historical workload.” Id.

Several questions submitted during the solicitation process asked about expectations

regarding the length of time between seizure and disposition. One offeror indicated that

“[t]he quantities for estimated number of seizures per year and estimated on-hand seizures

in the Workload Summary seems [sic] to indicate that seizures could be stored for multiple

years while the Dispositions chart states that disposition is expected to occur within one year

of seizure” and sought clarification of “the average length of time from seizure to

disposition.” Exhibit 1 at 55. Another indicated that “[t]he RFP states that ‘On average,

CBCA 5116

5

disposition is expected to occur within one year of seizure,’ but the Workload Summary

table shows On-Hand Seizures to be far greater than the number of seizures that take place

in a year,” and asked whether the amount of seized goods in storage was expected to grow

each year “due to the fact that a percent of seizures each year are not disposed of within a

year.” Id. at 75. In both instances, ATF responded that “[h]istoric workloads and statistics

are not necessarily indicative of future plans or future occurrences,” although “[i]t is the goal

of the organization that future disposals will take place in a timely manner.” Id. at 55, 75.

The solicitation indicated that the “transition/phase-in” period would “necessitat[e]

an overlap of time when both contractors, the incumbent and successor, will be in force.”

Exhibit 1 at 167. The offeror was required, as part of its proposal, to present a

“transition/phase-in plan” that, among other things, would show how the new contract

awardee would assume responsibility for storage of existing property inventories; obtain all

required leases, licenses, permits, and clearances necessary to perform; and “[t]ransition

work from the incumbent contractor to ensure continuity of services.” Id. It also had to

provide a transition/phase-in schedule providing for the receipt and transfer of existing

inventories of seized and forfeited property from the incumbent contractor to the new

awardee. Id. at 169-70. That transfer of existing inventories included a requirement that,

unless the new awardee intended to “re-contract” with the storage facilities being used by

the incumbent, the successor contractor would need to “implement a plan of action to

accomplish the transfer of the seized and forfeited property to its own Government-approved

storage facilities.” Id. at 171 (“These transfers would occur if the successor Contractor is

not able or is unwilling to re-contract with the storage facilities currently used by the

incumbent Contractor.”).

The solicitation contained a provision describing how the new contractor could

attempt to obtain a transfer of existing leases with the storage facility owners currently

housing seized property, but it expressly disclaimed any responsibility for the owners’

willingness to offer acceptable lease terms to the new contractor:

If the successor Contractor desires to lease facilities leased by the incumbent

Contractor, the [contracting officer (CO)] will, upon request, furnish the

Contractor with a letter announcing the transition in order to contract with the

landlords of these facilities. . . . [T]he CO makes no representations as to

whether the landlords will continue the same arrangements with the successor

Contractor for the balance of the lease or subcontractor term.

Exhibit 1 at 171 (§ C.1.10.7) (emphasis added). Similarly, the ATF-drafted “Transfer of

Seized and Forfeited Property” clause expressly warned offerors that the existing landlords

CBCA 5116

6

holding leases for seized property storage space were under no obligation to continue such

leases:

Note: The Offeror (Contractor) is free to negotiate with the incumbent’s

existing subcontracted storage facilities should they desire to propose these

facilities or vendors as subcontracts and thus reduce the need for local-to-local

and specialty-to-specialty storage site transfers if awarded the Contract.

However, the existing local and specialty storage facility vendors are under no

obligation to do so.

Id. (§ C.1.10.8).

Once the transition/phase-in period of the contract ended and moved into the base

period, the contractor would be expected to begin its physical custody and storage

obligations. Contract Line Item Number (CLIN) 0006 identified the contractor’s

responsibilities for storage of hazardous items, indicating that the hazardous items covered

by CLIN 0006 included “explosives and fireworks” that would need to be stored in bunkers:

Contract

Line Item

Number

Task Description

*

CLIN 0006 Storage –

Hazardous Items

Unload from

in-coming delivery

truck, inventory,

secure, store,

manipulate, load on

out-going delivery

truck, and release

for disposition.

Includes disposition

methods other than

destruction and

sale.

Unit of

Measure

*

Cost

Notes

*

Per

square

foot per

month

Includes storage

facility (bunker)

and

warehouseman

costs. Hazardous

items include

explosives and

fireworks.

CBCA 5116

7

Exhibit 1 at 131. The solicitation elsewhere identified the degree of care that hazardous

items would require:

The Contractor shall properly store hazardous items. When property is

received that is identified by state or Federal regulation as hazardous, the

Contractor shall store this material in accordance with Federal, state and local

laws, codes, ordinances, and regulations that apply to environmental quality

standards in each community where seized property is maintained or

destroyed. . . .

The Contractor shall utilize a storage location that is approved for storage of

HAZMAT, and shall not store materials with dissimilar properties in the same

area.

Id. at 234.

The solicitation also contained CLIN 0010 for “Other Direct Costs,” which were

“TBD [To Be Determined] by the Government Upon Award.” Exhibit 1 at 132. It indicated

that “[o]ther direct costs to be reimbursed by the Government include conference fees, travel

costs, and per diem expenses associated with ATF-requested special meetings, conferences,

briefings, and events related to this Contract.” Id. at 126.

A clause titled “Disposition of Seized and Forfeited Property” provided that “[t]he

seizing agencies maintain authority over all seized and forfeited property transferred to the

Contractor” and that “[s]eized and forfeited property shall be maintained by the Contractor

until its disposition.” Exhibit 1 at 235 (§ 4.5). The solicitation also provided that “[t]he

Contractor shall not move any property outside its storage facility without prior written

approval of the [contracting officer’s technical representative (COTR)]” and that “[a]ny

movement of property between storage facilities shall” meet the safety standards set forth

in the contract. Id. at 182 (§ C.4.4.8). It further stated that “[t]he Contractor shall dispose

of seized and forfeited property in accordance with the disposition order signed by the

COTR” and that “[d]isposition of seized and forfeited property may be made by:

destruction; recycling; remittance; retention by seizing agency for official use; transfer to

another Federal, state, or local agency or charitable organization; or sale.” Id. at 235 (§ 4.5).

It provided that, “[u]pon receipt of the disposition order, the Contractor shall execute the

disposition using the method identified on the order.” Id.

Section B of the solicitation indicated that ATF “expects to procure work under this

Contract through Firm Fixed Price and Fixed Rate Contract Line items.” Exhibit 1 at 126

(§ B.1.2). For the transition/phase-in costs in CLIN 0001, the offeror was to propose a

CBCA 5116

8

single fixed price for “all costs related to transition/phase-in, including relocation of seized

and forfeited property from existing warehouses to Contractor facilities.” Id. at 130. The

solicitation then broke the pricing for different kinds of anticipated storage into four

different CLINs: Storage – Non-Specialty Items (CLIN 0004), Storage – Climate Controlled

Items (CLIN 0005), Storage – Hazardous Items (CLIN 0006), and Storage of Items in

Administrative Custody (CLIN 0007). Id. at 131-49.

The pricing structure of each of these CLINs differed from the Treasury contract.

While storage costs under the Treasury contract were calculated “per pound” of seized

material each month, the new contract anticipated payment “per square foot [of storage

space] each month.” Id. at 131; see RSUF ¶ 24; Exhibit 7 at 526.

III.

VSE’s Proposal for the Successor Contract

VSE submitted its proposal in response to the solicitation on March 25, 2010. RSUF

¶ 26. Regarding the storage of hazardous items, VSE stated in its proposal that “[t]he VSE

team’s network of storage facilities provide safe and secure storage of explosives,” with

“many years experience storing explosives in secure bunker facilities,” and identified a

photo of the Heritage facility in Alda, Nebraska, as an example of its network. RUSF ¶ 29;

Exhibit 3 at 331. It asserted that “[w]e have a complete understanding of the Statement of

Work . . . and are positioned to satisfy those requirements at prices that are fair and

reasonable.” Exhibit 4 at 402; RSUF ¶ 37.

For the storage of hazardous waste, which was listed in the solicitation under CLIN

0006, VSE proposed a base year price of $1.95 per square foot, with incremental increases

in each of the option years. RSUF ¶ 31; Exhibit 3 at 372-91. VSE has represented that it

calculated this figure by converting a $0.10 per pound figure into a size estimate for the

Covington seizure, which equated to approximately $1.77 per square foot (to which VSE

would apply markups for general and administrative expenses). Exhibit 7 at 526.

While proposing a hazardous waste storage price of $1.95 per square foot under

CLIN 0006, VSE had been paying Heritage substantially more than that amount for storage

of the Covington seizure under the predecessor Treasury contract. Specifically, although

VSE was already paying Heritage approximately $170,000 per month (roughly equivalent

to a charge of $0.195 per pound), ATF would only pay about $72,500 to VSE each month

for the Covington seizure storage under VSE’s proposed CLIN 0006 price (roughly

equivalent to a charge of $0.10 per pound). Exhibits 7 at 526, 20 at 725.

Further, when it submitted its proposal, VSE had been unable to negotiate a

subcontract with Heritage. Despite having been unable to reach a subcontract agreement

CBCA 5116

9

with Heritage, VSE did not indicate any desire in its proposal to transfer the current

inventory of seized property to any other facilities or to charge the Government for any

transfer costs. For CLIN 0001, which covered transition/phase-in costs (“including

relocation of seized and forfeited property from existing warehouses to Contractor

facilities”), VSE proposed a price of $0.00. Exhibit 3 at 371.

IV.

Continuing Storage of the Covington Seizure

During the solicitation process for the successor contract, VSE continued to store the

Covington seizure at the Heritage facility under its Treasury contract, apparently continuing

to bill Treasury at a rate of $0.10 per pound for storage even though Heritage, despite the

fact that it had a subcontract with VSE, had started charging VSE $0.195 per pound.

The Droganes criminal prosecution also continued, but ATF did not return the legal

1.4G fireworks to Mr. Droganes following the district court’s February 9, 2009, order or

provide any compensation to Mr. Droganes for those fireworks (as the AUSA had indicated

ATF would). On July 8, 2010, Mr. Droganes filed a motion with the district court seeking

sanctions against the Government based upon ATF’s failure timely to return his legal 1.4G

fireworks.

V.

The Successor Contract Award

On September 24, 2010, ATF, through DOJ, awarded its successor indefinite

delivery/indefinite quantity (IDIQ) contract, contract DJA-10-D-000015 (ATF contract), to

VSE. Complaint ¶ 10; RSUF ¶ 36; Exhibit 4 at 455. The contract provided for a base

period of twelve months and nine one-year option periods, with no transition/phase-in period

(based upon VSE’s representation in its proposal that no transition activities were

necessary). Exhibit 4 at 463. In accordance with Federal Acquisition Regulation (FAR)

16.504 (48 CFR 16.504 (2010)), the solicitation provided a minimum purchase guarantee

by the Government for the base year (and, if exercised, for option years) of $1 million per

year, with a contract ceiling of $80 million. Id. at 464; RSUF ¶ 37. It expressly stated that

VSE’s proposal of March 25, 2010, was incorporated into and made a part of the contract.

Exhibit 4 at 464; RSUF ¶ 36.

After the new contract was awarded, VSE continued to store the Covington seizure

at Heritage’s facility. Complaint ¶ 10. ATF paid VSE for that storage under CLIN 0006 at

the contractually-established rate of $1.95 per square foot. Id. ¶ 11.

CBCA 5116

VI.

10

VSE’s Complaints About Contract Costs

Almost immediately upon contract award, VSE complained that the amounts that it

was being paid under CLIN 0006 were insufficient to cover its Covington seizure storage

costs. At a technical meeting on October 5, 2010, VSE advised ATF that its monthly storage

charges from Heritage exceeded its CLIN 0006 pricing and that its excess costs would

continue to increase the longer that the Covington seizure was held. Motion for Summary

Relief (MSR), Exhibit 2. VSE requested expedited disposition instructions to alleviate its

mounting costs. The stated “action” from that meeting was that VSE would work with ATF

and look for alternate storage locations in case the disposal instructions were not going to

be timely. Id.

By February 16, 2011, ATF was informed that VSE had been unable to negotiate

subcontract terms with Heritage because Heritage would not negotiate on pricing, meaning

that VSE had no subcontract with Heritage. MSR, Exhibit 3. VSE informed ATF that it

was paying Heritage for storage, but not at the prices that Heritage was demanding. Id. In

response to concerns that Heritage was going to declare bankruptcy or might not protect the

items in its possession, Heritage represented to ATF that it would “work in good faith,

remain operational and open and providing the necessary security to government property

as required while we continue to negotiate a final agreement” with VSE. Exhibit 5 at 523.

Nevertheless, ATF asked VSE about the possibility of moving the Covington seizure to

another facility, and VSE indicated that it would take approximately ninety days to prepare

for a move, although both parties understood that special permits from the Department of

Transportation (DOT) allowing for the transport of such hazardous materials would be

necessary and that ATF likely would have to process a waiver request to DOT. MSR,

Exhibit 3. In response to VSE’s inquiry about the status of disposition for the Covington

seizure, ATF stated that the issue was with the district court. Id.

VSE’s excess unreimbursed costs continued to mount. In an attachment to its

complaint, VSE has represented that, for storage during the month of October 2010, VSE

paid Heritage a total of $176,553.96, but was reimbursed, in accordance with the terms of

the ATF contract, only $72,540, a difference of over $100,000. See Complaint, Attachment

D. It further alleged that, by January 2011, Heritage’s monthly charge, for various reasons,

had decreased to $95,580, but VSE was able to bill ATF only $70,200. See id. Although,

in a February 2011 submission to ATF, VSE identified some slightly different dollar figures

for January 2011, see MSR, Exhibit 5, the record is clear that, no matter what the exact

numbers are, VSE was recovering far less from ATF than it was being charged by Heritage.

By late February and March 2011, VSE was recommending to ATF that the

Covington seizure be moved from Heritage to another location, High Desert Pyro in Utah,

CBCA 5116

11

but at ATF’s expense. Exhibits 7 at 525-28, 8 at 532-36, 26 at 752. ATF represents that it

ultimately declined to authorize reimbursement of transport costs because, in the COTR’s

opinion, ATF had not caused the Heritage cost issue, MSR, Exhibit 4, but VSE questions

whether that was the true reason. In any event, VSE never requested a transfer of the

Covington seizure away from Heritage that did not involve ATF’s payment of transport

costs.

At the same time, VSE was hoping for a disposition order for the fireworks from the

Droganes district court. The record reflects that ATF made various representations about

the status of the district court action: (1) at a March 18, 2011, meeting, an ATF

representative stated “that now ATF expects a decision from the court in the near future,”

Exhibit 27; (2) at a May 27, 2011, meeting, ATF indicated that it expected “[a] dispo[sition]

possibly to be issued for destruction in August [2011],” Exhibit 29; (3) at a July 14, 2011,

meeting, ATF indicated that “the expected destruction” was “now anticipated to be in

September [2011],” Exhibit 31; and (4) at an August 30, 2011, meeting, “[i]t was agreed that

in anticipation of the destruction disposition order . . . VSE procurement would” obtain

quotes for on-site fireworks destruction. Exhibit 32.

VII.

Bad Faith Findings in the Droganes Criminal Proceeding

After Mr. Droganes filed his motion for sanctions against the Government on July 8,

2010, DOJ filed its own motion, on January 14, 2011, seeking permission to destroy the

legal 1.4G fireworks because they had deteriorated to such a degree that they could not be

returned to Mr. Droganes.

On May 18, 2012, a United States magistrate judge issued a report and

recommendation, approving a list of fireworks that should be forfeited as 1.3G fireworks,

but also finding bad faith by the Government in responding to the court’s orders. The

magistrate judge stated that, “[w]hile the evidence and record do not demonstrate that the

Government acted with intentional disobedience or bad faith in seizing the consumer

fireworks, the Government’s conduct in failing to provide a complete list of the 1.4G

fireworks by the deadline ordered by the District Judge . . . and in failing to return [Mr.

Droganes’] lawful items as ordered by the District Judge does constitute bad faith.” United

States v. Droganes, No. 08-51, 2012 WL 3610219, at *11 (E.D. Ky. May 18, 2012). The

magistrate judge also disagreed with DOJ that the 1.4G fireworks had deteriorated to such

a point that they should not be returned to Mr. Droganes, recommended that the district court

order return of the 1.4G fireworks, and recommended the imposition of sanctions against

the United States. Id. at *15.

CBCA 5116

12

Both parties objected to the magistrate judge’s recommendations, although DOJ

withdrew its request for permission to destroy the 1.4G fireworks and agreed to return them

to Mr. Droganes. By decision dated August 21, 2012, the district court judge approved the

magistrate judge’s recommendation regarding which fireworks constituted 1.3G fireworks

subject to forfeiture, but found that sovereign immunity barred the imposition of sanctions

against the United States in the circumstances there. United States v. Droganes, 893

F. Supp. 2d 855, 865-85 (E.D. Ky. 2012), aff’d, 728 F.3d 580 (6th Cir. 2013), cert. denied,

134 S. Ct. 2287 (2014). Nevertheless, the district court judge found that “the Magistrate

judge appropriately concluded the government engaged in bad-faith conduct that,” but for

sovereign immunity, “would justify sanctions.” Id. at 885. The court based its bad faith

finding upon (1) the Government’s failure fully to comply with court orders to complete

fireworks testing by specific deadlines and to provide Mr. Droganes a time table for the

return of legal 1.4G fireworks and (2) its repeated misstatements about “the condition of

fireworks in its refusal to return what were later found to be legal, undamaged fireworks.”

Id. at 885-86.3 Although VSE cites to the Droganes court’s bad faith findings in its

pleadings, it has not placed any evidence from the Droganes litigation in the record of this

appeal or attempted to establish the Government’s bad faith in that litigation outside the

context of its citation to the court decisions.

The district court issued a separate order on August 21, 2012, directing ATF to return

any fireworks designated as 1.4G to Mr. Droganes within thirty days. RSUF ¶ 46. On

September 28, 2012, ATF issued a task order to VSE for $250,000 directing the return of

272,832 pounds of 1.4G fireworks to Mr. Droganes. RSUF ¶ 47; Exhibit 13 at 576-88.

Those fireworks – approximately one-third of the Covington seizure being stored at Heritage

– were returned to Mr. Droganes in September 2012. RSUF ¶ 47.

On September 11, 2012, the district court issued a preliminary order and judgment

of forfeiture in Droganes, ordering that the 1.3G fireworks be condemned and forfeited to

the United States pursuant to 18 U.S.C. § 844(c)(1). Mr. Droganes appealed the district

court’s preliminary judgment of forfeiture to the Court of Appeals for the Sixth Circuit, but

requests to stay the preliminary judgment were denied. On May 28, 2013, over Mr.

Droganes’ objection, the district court issued a final decree and order of forfeiture of the

1.3G fireworks and allowed ATF to dispose of them in accordance with law. See MSR,

3

On appeal, the Court of Appeals for the Sixth Circuit affirmed the district court’s

decision, but, like the district court, was “disturbed” by the “seemingly interminable delays

in testing the seized fireworks” and “the government’s doublespeak regarding the condition

of the consumer fireworks and its ability to return them to Droganes.” United States v.

Droganes, 728 F.3d 580, 590 (6th Cir. 2013), cert. denied, 134 S. Ct. 2287 (2014).

CBCA 5116

13

Exhibit 7. VSE represents that the forfeiture order became final and non-appealable on

December 17, 2013.

VIII. Continuing Covington Seizure Storage

During the proceedings in the Droganes action, ATF continued to ask about the

contracting situation between VSE and Heritage, Exhibits 31, 34, and eventually issued a

cure notice to VSE, dated July 31, 2012, asking VSE to address several issues that

concerned ATF, including the fact that “VSE has yet to establish a firm contract with

Heritage Disposal and Storage LLC since the award of the contract between ATF and VSE”

almost two years earlier. Exhibit 10 at 560; see RSUF ¶ 44. ATF asked VSE, within ten

days, to provide “[a] plan of action explaining how the above issue[] will be corrected.”

Exhibit 10 at 560. VSE responded to that issue by letter dated August 9, 2012, indicating

that ATF’s “concern is valid,” but disagreeing “that it is considered a deficiency under FAR

52.249-8, Default (Fixed Price Services)” because “[t]he seized property located at Heritage

Disposal and Services LLC is stored in accordance with the requirements of the contract”

and “VSE invoices within the current terms of the contract.” Exhibit 11 at 563. VSE

concluded with a request for “some meaningful dialogue . . . to seek a global solution to the

Heritage issue.” Id.; see RSUF ¶ 45. No such solution was reached, and those portions of

the Covington seizure that were not returned to Mr. Droganes in September 2012 remained

stored in Heritage’s facility, even though VSE had no storage contract with Heritage.

Once the disposition order became final and non-appealable in December 2013, ATF

informed VSE that it was considering transporting the remaining Covington seizure to a

government facility in California for use in fireworks detonation and destruction testing.

Exhibit 36, 38. The record indicates that VSE proposed that Heritage perform the

destruction, pursuant to a settlement agreement that VSE had reached with Heritage through

which, were Heritage to obtain the destruction work, VSE’s past-due storage costs would

be waived. Exhibit 38; Exhibit 49 at 839. ATF considered Heritage’s proposal, but

ultimately objected to the rotary kiln thermal method of destruction that Heritage planned,

as well as the costs that Heritage would charge ATF for destructive testing. Exhibit 39;

Exhibit 49 at 851. ATF eventually arranged for transport of the Covington seizure, at its

own expense, to the government facility in California for destructive testing, and the last

fireworks were removed from Heritage’s facility in August 2015. Because Heritage did not

receive the destruction work, VSE’s settlement agreement with Heritage had no effect on

VSE’s storage costs.

CBCA 5116

IX.

14

VSE’s Monetary Claims

A.

The First Certified Request

On March 17, 2015, VSE submitted a request for equitable adjustment (REA) to ATF

for $2,357,032 in storage costs, certified as a claim in accordance with FAR 33.207. Exhibit

18 at 648-89. In its REA, VSE requested that ATF classify the Covington seizure storage

costs as “Other Direct Costs” in CLIN 0010, rather than as hazardous item storage costs

under CLIN 0006, so that VSE could recover its actual payments to Heritage without regard

to the CLIN 0006 pricing scheme. Id. at 648. It asserted that Heritage was charging it what

amounted to “a rate of $12.19 per square foot” for the Covington seizure storage, where

VSE’s contract only permitted it to recover $1.95 per square foot under CLIN 0006. Id. at

649. It asserted that “[u]sing the square foot methodology for this highly specialized seizure

does not support the requirements needed to safeguard and mitigate the dangers associated

with the magnitude and volatility of the stored fireworks.” Id. at 649-50. It claimed that it

had anticipated prior to contract award that “the storage costs would be covered” under

CLIN 0010 and not under CLIN 0006. Id. at 650.

On May 13, 2015, the ATF contracting officer issued a decision denying VSE’s

March 17, 2015, REA, although without the language notifying VSE of its appeal rights as

required by 41 U.S.C. § 7103(e) and FAR 33.211(a)(4)(v). Exhibit 19 at 690-91.

B.

The Second Certified Request

On or about August 10, 2015, VSE submitted another REA to the ATF contracting

officer, this time seeking a contract price adjustment of $6,235,707.53 (plus applicable

burdens and interest), certified as a claim in accordance with FAR 33.207. Exhibit 20 at

692-736. Of that amount, VSE asserted that $1,712,164.40 was money that VSE had

already paid to Heritage for services performed between October 2010 and July 2015 for

which VSE had not been compensated and that the additional $4,523,542.93 was for money

that Heritage claimed was still owed to it. In this REA, VSE asserted that it was “entitled

to this price adjustment due to constructive changes that occurred during its storage of the

Covington seizure under the Contract.” Id. at 692. It alleged that “ATF constructively

changed the Contract by requiring VSE to store the Covington seizure – an unusually large

and volatile collection of fireworks – for far longer than the duration contemplated in the

Contract.” Id. at 694. It asserted that it “did not factor into its price proposal the unforeseen

possibility that the Covington seizure would need to be safeguarded” for a period of eight

years (inclusive of the storage time under its prior Treasury contract). Id. It claimed that

“VSE should not unfairly bear the cost burden of ATF’s unilateral decision to store the

fireworks at the Heritage facility for such a long period of time.” Id. at 696.

CBCA 5116

15

By decision dated September 19, 2015, the ATF contracting officer denied VSE’s

second claim, but, again, did not include any language regarding VSE’s appeal rights in his

decision. Exhibit 22 at 741-42.

X.

Heritage’s Lawsuit Against VSE

On or about February 27, 2015, Heritage filed suit against VSE in the United States

District Court for the District of Nebraska, a suit that was subsequently transferred to the

United States District Court for the Eastern District of Virginia. RSUF ¶ 50; see Heritage

Disposal & Storage, L.L.C. v. VSE Corp., No. 15-CV-00076, 2015 WL 5821764 (D. Neb.

Oct. 5, 2015) (transferring Heritage’s suit to the Virginia district court). In its complaint,

Heritage sought $4,523,542.93, plus interest and costs, for VSE’s failure fully to pay

Heritage for its storage services beginning in December 2010 (approximately two months

after the ATF contract was awarded). RSUF ¶ 50; Amended Complaint ¶ 35. Heritage

alleged causes of action against VSE for breach of contract, quantum meruit, and unjust

enrichment, all arising out of the services that Heritage provided to store the Covington

seizure.

On January 24, 2017, the district court issued a decision affirming a jury verdict in

Heritage’s favor, but reducing the jury-awarded damages to $3,496,086.29. See Heritage

Disposal & Storage, L.L.C. v. VSE Corp., No. 15-CV-1484, 2017 WL 361547 (E.D. Va.

Jan. 24, 2017). In its decision, the district court, as part of its review of the jury’s verdict,

made numerous findings about VSE’s storage of the Covington seizure with Heritage,

including the following:

12.

Heritage initially billed for its storage service pursuant to a purchase

order that had been issued to it and which expired on September 30,

2010 (the “Purchase Order”).

13.

On May 9, 2009, . . . Heritage increased its storage billing rate under

the Purchase Order from $0.10 per pound to $0.195 per pound in light

of the additional space allocated to the fireworks [resulting from a repalleting of the fireworks because of safety concerns]. Based on that

increased rate, Heritage billed VSE $170,000 per month for storage.

14.

The Treasury Contract and Heritage’s Purchase Order both expired on

September 30, 2010. On September 24, 2010, ATF awarded VSE a

replacement prime contract for the period beginning October 1, 2010,

which also covered the storage and manipulation of the Covington

Seizure (the “ATF Contract”). The ATF Contract, however, did not

CBCA 5116

16

authorize payment for storage on a cost-plus basis, as the Treasury

Contract, but rather provided for payment at specified rates for various

categories of items stored; and ATF took the position that the

Covington Seizure fell within a category whose storage rate was

substantially below Heritage’s storage fees under the expired Treasury

Contract and Purchase Order.

15.

The ATF Contract was negotiated and issued without Heritage’s

involvement, knowledge, or consent as to its rate structure.

....

17.

VSE and Heritage were never able to agree to a new subcontract with

respect to the ATF Contract after the expiration of the Treasury

Contract and the Purchase Order. In that regard, VSE refused to

continue the storage payments to Heritage at the same level as under

the Treasury Contract; and Heritage did not agree to accept as full

payment the amount that VSE was paying on a monthly basis. As a

result, there was a dispute between the parties concerning the amount

that Heritage should be paid for storage for the period beginning

October 1, 2010 through August 2015, when all of the Covington

Seizure had been transferred out of Heritage’s facilities.

18.

Notwithstanding their dispute over the price of storage, Heritage

initially continued to invoice VSE as it did under the Purchase Order.

In that regard, it initially billed VSE $170,000 per month, calculated

at the rate of $0.195 per pound, for the months of October-December

2010. VSE paid Heritage’s October and November 2010 invoices, but

then, beginning for the period December 1, 2010, paid $92,394 per

month.

19.

After VSE refused to continue paying $170,000, Heritage changed its

billing rate from a per pound rate of $0.195 per pound to a square foot

storage rate of $12.19; and beginning in February 2011, for the

monthly period ending January 31, 2011, Heritage billed $206,000 per

month for storage services based on its square foot storage rate of

$12.19, rather than $170,000 per month at the rate of $0.195 per

pound. It also billed that per square foot charge retroactively to the

period beginning October 1, 2010. As a result, for the period

beginning October 1, 2010, and continuing through September 2012,

CBCA 5116

17

when a volume of fireworks was transferred out of Heritage’s storage

facilities, Heritage billed $206,000 per month; and VSE paid $92,394

per month (except for November and December 2010, for which it paid

$170,000 per month).

....

21.

Following the September 2012 transfer of fireworks, for the period

beginning October 1, 2012, Heritage billed $125,069 per month (rather

than $206,000), calculated based on $12.19 per square foot of space

allocated to the fireworks remaining in storage. VSE paid $60,534 per

month through August 2013, and then $57,348 per month through

February 2015.

....

24.

The rate charged by the only other vendor VSE could identify that was

capable of storing the Covington Seizure in accordance with the

requirements set forth in ATF Contract charged a rate of over $24 per

square foot, a rate nearly 100% higher than the $12.19 per square foot

rate billed to VSE by Heritage.

25.

VSE did not object to Heritage’s monthly bills except on the grounds

that under the ATF contract, VSE could not recover the full amount of

what Heritage had been charging because it had negotiated (without

Heritage’s involvement or agreement) a price for storage that did not

cover what Heritage had been billing, and VSE had been paying, for

over 3 years.

....

36.

No later than the end of 2010, VSE was on reasonable notice that the

parties had not reached an agreement concerning price and that

Heritage expected to be paid an amount greater than what VSE was

paying; and with that knowledge, VSE continued to request and accept

Heritage’s storage services despite the lack of agreement as to price.

Exhibit 49 at 835-42 (Heritage Disposal, 2017 WL 361547, at *2-*4). The court also found

that “[t]here were . . . limited alternatives to Heritage’s facility, and those that were available

charged rates substantially higher than Heritage’s.” Id. at 862; see id. at 835 (“VSE was able

CBCA 5116

18

to locate only one other suitable facility for the storage of the Covington Seizure, whose

storage fees were nearly twice those of Heritage.”). The court entered judgment in

Heritage’s favor in the amount of $3,496,086.29.

On February 10, 2017, to avoid potential appeal issues and to create finality, VSE

entered into a settlement of all claims with Heritage in the amount of $3,287,500 (a slight

reduction in the district court judgment), waiving its appeal rights. Joint Status Report ¶ 7

(Feb. 27, 2017); Exhibit 50 at 866-68. Heritage subsequently notified the district court that

the court’s judgment had been satisfied. Exhibit 51. The parties did not request, as part of

their settlement, vacatur of the district court’s decision. See Exhibit 50.

XI.

VSE’s Appeal to the Board

On December 17, 2015, VSE filed with the Board its notice of appeal of the

contracting officer’s September 19, 2015, decision, asserting as the basis of its appeal that

“ATF constructively changed the contract by requiring VSE to store the Covington seizure

. . . for far longer than the duration contemplated by the contract,” a “protracted storage

duration” that “qualitatively changed the work to be performed” and that “entitles VSE to

its requested price adjustment.” Attached to the appeal notice was a copy of the contracting

officer’s decision of September 19, 2015. The notice of appeal neither mentioned nor

attached the contracting officer’s decision of May 13, 2015, on VSE’s earlier REA.

On March 14, 2016, after VSE filed its complaint in accordance with Board Rule

6(b), 48 CFR 6101.6(b) (2015), ATF filed a motion for summary relief in lieu of an answer,

arguing that VSE could not establish that ATF constructively changed the contract. After

the parties fully briefed that motion, the parties on June 23, 2016, jointly filed a motion to

suspend proceedings in this appeal in light of a voluntary disclosure that VSE had made to

Treasury and DOJ involving the possibility that Heritage had overstated the weight of the

Covington seizure in calculating storage costs under the Treasury contract, which the parties

believed might have resulted in overbillings to the Government and might implicate issues

in this appeal. The Board granted the parties’ request and suspended its consideration of

ATF’s motion for summary relief.

Subsequently, after reporting that the district court in Heritage rejected VSE’s proffer

that Heritage was engaged in a fraudulent billing scheme and that VSE had reached a

settlement with Heritage, the parties on February 27, 2017, sought to lift the suspension of

proceedings and to provide VSE with an opportunity to amend its pleadings to reflect recent

events. VSE filed an amended complaint on April 26, 2017, updating its prior allegations,

adding two new counts to its complaint (seeking an equitable adjustment based upon a

breach of the implied duty of good faith and fair dealing theory and a superior knowledge

CBCA 5116

19

withholding theory), and supplementing its previous constructive change count to add a

commercial impracticability argument. The parties completed supplemental briefing on

May 26, 2017, and the Board heard oral argument on the motion on October 19, 2017.

Discussion

I.

Standard of Review

“Resolving a dispute on a motion for summary relief is appropriate when the moving

party is entitled to judgment as a matter of law, based on undisputed material facts,” and

“[t]he moving party bears the burden of demonstrating the absence of genuine issues of

material fact.” General Heating & Air Conditioning, Inc. v. General Services

Administration, CBCA 1242, 09-2 BCA ¶ 34,256, at 169,264 (quoting AFR & Associates,

Inc. v. Department of Housing & Urban Development, CBCA 946, 09-2 BCA ¶ 34,226, at

169,168). “A fact is considered to be material if it will affect the Board’s decision, and an

issue is genuine if enough evidence exists such that the fact could reasonably be decided in

favor of the non-movant after a hearing.” Id. Although all reasonable inferences must be

drawn in the non-moving party’s favor, the non-movant, to defeat a summary relief motion,

“‘must show an evidentiary conflict on the record’” and “set forth specific facts showing

there is a genuine issue for trial.” A-Son’s Construction, Inc. v. Department of Housing &

Urban Development, CBCA 3491, et al., 15-1 BCA ¶ 36,089, at 176,205 (quoting Mingus

Constructors, Inc. v. United States, 812 F.2d 1387, 1390-91 (Fed. Cir. 1987)). The

non-movant cannot defeat a request for summary relief by merely reciting factual

disagreements and allegations that find no support in the evidentiary record.

II.

The Scope of VSE’s Claim Before the Board

VSE argues repeatedly that it did not anticipate that it would have to store the

Covington seizure for eight years. The first three years of that eight-year period involve the

time that VSE was storing the seizure under the terms of its prior contract, which was with

Treasury. VSE’s successor contract, which covered the last five years of the Covington

seizure, was awarded by DOJ. VSE submitted the certified claim that underlies this appeal,

dated August 10, 2015, to the DOJ contracting officer, not Treasury.

To the extent that VSE is arguing that there was some type of breach under its

Treasury contract and that it is entitled to damages for all or part of the first three years of

the Covington seizure storage, we lack jurisdiction to entertain that claim. Before we could

review damages arising under the Treasury contract, VSE would have to submit a claim for

monetary relief under the Treasury contract to the Treasury contracting officer. See Sharp

Electronics Corp. v. McHugh, 707 F.3d 1367, 1370-71 (Fed. Cir. 2013) (claim must be

CBCA 5116

20

submitted to a contracting officer at the agency with responsibility for the contract). Without

a claim submission to Treasury, we lack jurisdiction to consider any complaint about

damages arising from the three years of Covington seizure storage under the Treasury

contract. See id. at 1370-71, 1375.

III.

Collateral Estoppel Implications of the District Court Decisions

A.

Collateral Estoppel Against VSE

Under the doctrine of collateral estoppel, “issues which are actually and necessarily

determined by a court of competent jurisdiction are conclusive in a subsequent suit involving

the parties to the prior litigation.” Mother’s Restaurant, Inc. v. Mama’s Pizza, Inc., 723 F.2d

1566, 1569 (Fed. Cir. 1983). The rationale underlying this rule “is that a party who has

litigated an issue and lost should be bound by that decision and cannot demand that the issue

be decided over again.” Id. Accordingly, “[w]hen an issue of fact or law is actually litigated

and determined by a valid and final judgment, and the determination is essential to the

judgment, the determination is conclusive in a subsequent action between the parties,

whether on the same or a different claim.” Restatement (Second) of Judgments § 27 (1982).

During the pendency of this appeal, the district court issued a monetary judgment

against VSE in Heritage, which affected the amount of money that VSE is claiming here.

In rendering that judgment, the district court, following a jury trial, made extensive factual

findings that are directly relevant to the issues in this appeal. ATF, however, was not a party

to the Heritage litigation. To bind VSE to the district court’s findings in Heritage, we

would have to apply the doctrine of nonmutual collateral estoppel, which “refers to use of

collateral estoppel by a nonparty to a previous action to preclude a party to that action from

relitigating a previously determined issue in a subsequent lawsuit against the nonparty.”

State of Idaho Potato Commission v. G&T Terminal Packaging, Inc., 425 F.3d 708, 713 n.3

(9th Cir. 2005). “‘Defensive’ use of nonmutual collateral estoppel involves a defendant

attempting to preclude a plaintiff from relitigating an issue that the plaintiff previously

litigated unsuccessfully against a different party.” Id.

Although the collateral estoppel doctrine was at one time limited to situations in

which both parties (or those in privity with them) had mutually participated in both the prior

and the current litigation, the Supreme Court has expanded the doctrine to permit the use of

nonmutual defensive collateral estoppel against a private party in appropriate instances.

Blonder-Tongue Laboratories, Inc. v. University of Illinois Foundation, 402 U.S. 313, 329

(1971). Accordingly, as one of our predecessor boards recognized, “only the party against

whom collateral estoppel is asserted need be bound by the previous judgment” so long as

the party being estopped was afforded a full and fair opportunity to litigate in the first action.

CBCA 5116

21

John H. Hampshire, Inc., GSBCA 4860, 81-1 BCA ¶ 14,914, at 73,769. “Permitting

litigants to assert collateral estoppel in a defensive pose promotes efficiency by discouraging

speculative lawsuits and conserving the resources of defendants.” Acevedo-Garcia v.

Monroig, 351 F.3d 547, 574 (1st Cir. 2003); see Standefer v. United States, 447 U.S. 10, 24

(1980) (“no significant harm flows from enforcing a rule that affords a litigant only one full

and fair opportunity to litigate an issue, and there is no sound reason for burdening the

courts with repetitive litigation”); Parklane Hosiery Co. v. Shore, 439 U.S. 322, 330-33

(1979) (permitting both offensive and defensive use of collateral estoppel, even though there

was no mutuality of parties in the prior action). “[I]f the party against whom preclusion is

sought did in fact litigate an issue of ultimate fact and suffered an adverse determination,

new evidentiary facts may not be brought forward to obtain a different determination of that

ultimate fact.” Restatement (Second) of Judgments § 27 cmt. c.

“[N]onmutual issue preclusion is not available as a matter of right.” RodriguezGarcia v. Miranda-Marin, 610 F.3d 756, 772 (1st Cir. 2010) (quoting 18A Charles Alan

Wright, Arthur R. Miller & Edward H. Cooper, Federal Practice & Procedure § 4465, at

728 (2d ed. 2002)). A tribunal may refuse to apply it if, for example, its application would

badly distort matters that must otherwise still be decided or would not result in efficiency

gains; if the stakes in the first action were insufficient to have provided the party an

incentive to litigate vigorously; or if the later action was not foreseeable at the time of the

first. Id.; 18A Charles Alan Wright, Arthur R. Miller, & Edward H. Cooper, supra,

§ 4465.1, at 747. “The burden of avoiding preclusion, though, is placed on the party who

asserts lack of a full and fair opportunity to litigate in the first action.” 18A Charles Alan

Wright, Arthur R. Miller & Edward H. Cooper, supra, § 4465, at 734-35; see

Carter-Wallace, Inc. v. United States, 496 F.2d 535, 539 (Ct. Cl. 1974) (burden is on party

being estopped). Here, the issues that VSE litigated in Heritage, both factually and legally,

are directly related to its claim in this appeal, and they were vigorously litigated there in an

effort by VSE to reduce its storage cost damages. In fact, this appeal was stayed for over

eight months to allow for resolution of the Heritage case, based upon the parties’

representations that the case was relevant to the issues in this appeal. Plainly, the possibility

that the Heritage court would issue findings directly relevant to this litigation was

foreseeable. In such circumstances, we see no reason not to apply collateral estoppel against

VSE to the extent that findings and issues actually decided in Heritage were fully and fairly

litigated there.

We recognize that, after the Heritage district court issued its final judgment but

before appeal, Heritage and VSE settled their dispute, with both parties waiving their appeal

rights. Yet, the parties did not ask the district court to vacate the Heritage judgment or

findings. Because the district court’s decision was not vacated, collateral estoppel principles

still may be applied to it, despite the parties’ post-judgment settlement. See, e.g., United

CBCA 5116

22

States v. Munsingwear, Inc., 340 U.S. 36, 40 (1950) (vacatur is necessary “to prevent a

judgment, unreviewable because of mootness, from spawning any legal consequences”

through application of preclusion doctrine); Hartley v. Mentor Corp., 869 F.2d 1469, 1473

(Fed. Cir. 1989) (“to be assured that the judgment here would have no collateral estoppel

effect, [plaintiff] would have had to have the [district] court vacate its order, which he failed

to do”).

In its briefing, ATF has not expressly used the words “collateral estoppel” in

opposing VSE’s claim. In fact, ATF could not have raised that defense when it originally

filed its summary relief motion because there were not yet any district court findings in

Heritage: the court had not yet issued its decision. Nevertheless, in its supplemental brief,

filed after VSE amended its complaint in response to the Heritage decision, ATF repeatedly

references the district court’s findings in support of its summary relief request. By relying

upon the findings to support summary relief in its favor, it seems clear that ATF is asking

us to apply the collateral estoppel doctrine to the new legal theories, even if it does not use

those express words. In any event, we have the discretion to raise collateral estoppel sua

sponte where a prior adjudication has been brought to the tribunal’s attention and the tie

between the findings previously made and the new allegations being raised is clear. See,

e.g., Caldera v. Northrop Worldwide Aircraft Services, Inc., 192 F.3d 962, 970 (Fed. Cir.

1999) (recognizing that courts have allowed collateral estoppel to be raised sua sponte);

Studio Art Theatre of Evansville, Inc. v. City of Evansville, 76 F.3d 128, 130 (7th Cir. 1996)

(district court could raise issue of collateral estoppel sua sponte because the benefits of

precluding relitigation of issues run not only to litigants, but also to the judicial system);

Salahuddin v. Jones, 992 F.2d 447, 449 (2d Cir. 1993) (same); Liles v. United States, 219

Ct. Cl. 619, 620 (1979) (“The facts in the instant case require us, sua sponte, to raise the

principle of collateral estoppel.”). It is appropriate to do so here.

There are four prerequisites to the application of collateral estoppel: “(1) the issues

to be concluded are identical to those involved in the prior action; (2) in that action the

issues were raised and ‘actually litigated’; (3) the determination of those issues in the prior

action was necessary and essential to the resulting judgment; and (4) the party precluded . . .

was fully represented in the prior action,” with a full and fair opportunity to litigate the

issues to be precluded. Mother’s Restaurant, 723 F.2d at 1569 & n.4. With regard to the

requirement “that a finding be ‘necessary’ to a judgment,” that “does not mean that the

finding must be so crucial that, without it, the judgment could not stand.” Id. at 1571. It

means only that, if a finding was “incidental or collateral” to “a nonessential issue,” it will

not necessarily be barred from reconsideration in later litigation. Id. Such incidental

findings “have the characteristics of dicta.” Restatement (Second) of Judgments § 27 cmt. h.

CBCA 5116

23

The district court’s findings that we have cited above meet the four prerequisites for

applying issue preclusion and are directly relevant to VSE’s current appeal. In particular,

although VSE alleges here that ATF never provided necessary consent to allow VSE to

move the Covington seizure from Heritage’s facility to another site, the district court found

that there was no other less costly site to which VSE could have moved it. For reasons that

we will address below, that finding directly affects VSE’s constructive change argument.

VSE had a strong incentive to litigate vigorously against Heritage’s lawsuit and a full and

fair opportunity to do so. We find that VSE is collaterally estopped from contesting the

district court’s findings that we have cited above.

B.

Collateral Estoppel Against ATF

1.

The Heritage Litigation

VSE has referenced some of the district court’s findings in Heritage as evidence that

should negatively affect ATF, but ATF is not bound by the Heritage findings. Litigants who

never appeared in a prior action “may not be collaterally estopped without litigating the

issue.” Blonder-Tongue Laboratories, 402 U.S. at 329. Such litigants “have never had a

chance to present their evidence and arguments on the claim,” and “[d]ue process prohibits

estopping them despite one or more existing adjudications of the identical issue which stand

squarely against their position.” Id.; see Beacon Oil Co. v. O’Leary, 71 F.3d 391, 395 (Fed.

Cir. 1995) (no collateral estoppel against entity not a party to prior case); Mendenhall v.

Cedarapids, Inc., 5 F.3d 1557, 1569 (Fed. Cir. 1993) (“factual findings . . . cannot be used

as a collateral estoppel against defendants who were not parties to that case”).

2.

The Droganes Litigation

VSE has asserted that the district court’s bad faith finding against ATF in the

Droganes criminal action establishes ATF’s bad faith here. The bad faith finding in

Droganes related to ATF’s bad faith towards Mr. Droganes and the court itself, rather than

towards VSE. To the extent that such a finding has any relevance to VSE’s contractual

rights, VSE cannot rely upon it to support its bad faith argument.

When a party is seeking to apply collateral estoppel against the United States, both

the Government and the private party seeking to bar relitigation have to have been parties

to the same prior action. That is, “[c]ollateral estoppel will apply against the government

only if mutuality of parties exists.” American Federation of Government Employees,

Council 214, AFL-CIO v. Federal Labor Relations Authority, 835 F.2d 1458, 1462 (D.C.

Cir. 1987); see United States v. Mendoza, 464 U.S. 154, 158 (1984) (“nonmutual offensive

collateral estoppel is not to be extended to the United States”). VSE was not a party to the

CBCA 5116

24

Droganes criminal action. Accordingly, VSE cannot apply collateral estoppel principles

against ATF to support its bad faith argument.

In fact, VSE cannot even rely upon the Droganes findings as evidence in opposing

ATF’s summary relief motion. Although a judicial admission by a party in a prior suit may

be admissible as a piece of evidence in a later-filed suit, Shell Oil Co. v. United States, 130

Fed. Cl. 8, 76 (2017), judicial factual findings, unless they provide a basis for applying

collateral estoppel principles or are not subject to reasonable dispute within the parameters

of Federal Rule of Evidence 201, constitute hearsay that is not admissible at trial. See, e.g.,

United States v. Jones, 29 F.3d 1549, 1554 (11th Cir. 1994); Nipper v. Snipes, 7 F.3d 415,

417-18 (4th Cir. 1993); Taylor v. Washington Metropolitan Area Transit Authority, 922 F.

Supp. 665, 675 (D.D.C. 1996); Fed. R. Evid. 201(b). As a result, they are not admissible

in connection with a summary relief motion. Jones, 29 F.3d at 1554; In re Acceptance

Insurance Cos., Securities Litigation, 352 F. Supp. 2d 940, 950 (D. Neb. 2004). To the

extent that VSE wants to establish ATF’s bad faith in connection with the Government’s

conduct under VSE’s contract, it must present evidence in support of its position.

IV.

VSE’s Constructive Change Theory

A.

The Constructive Change Doctrine

The original basis of VSE’s appeal was that ATF constructively changed its contract

by requiring prolonged storage of the Covington seizure. Complaint ¶¶ 17, 33. In its initial

response to ATF’s motion for summary relief, VSE argued that “ATF constructively

changed the Contract by requiring VSE to store the Covington Fireworks with Heritage for

eight years,” a “prolonged duration . . . far in excess of the storage period contemplated in

the Contract and anticipated by ATF and VSE at the time the Contract was awarded.”

Appellant’s Response at 3. It alleged that “VSE did not and could not factor into its price

proposal the unforeseen and unforeseeable possibility that the Covington Fireworks would

need to be safeguarded for such a long time.” Id.

“The government constructively changes a contract to which it is a party when ‘a

contractor performs work beyond the contract requirements without a formal order, either

by an informal order or due to the fault of the Government.’” Agility Public Warehousing

Co. KSCP v. Mattis, 852 F.3d 1370, 1385 (Fed. Cir. 2017) (quoting International Data

Products Corp. v. United States, 492 F.3d 1317, 1325 (Fed. Cir. 2007)). “A constructive

change entails two base components, the change component and the order or fault

component.” Miller Elevator Co. v. United States, 30 Fed. Cl. 662, 678, appeal dismissed,

36 F.3d 1111 (Fed. Cir. 1994). Accordingly, “[t]o demonstrate that the government has

constructively changed the terms of a contract, ‘a plaintiff must show (1) that it performed

CBCA 5116

25

work beyond the contract requirements, and (2) that the additional work was ordered,

expressly or impliedly, by the government.’” Agility Public Warehousing, 852 F.3d at 1385

(quoting Bell/Heery v. United States, 739 F.3d 1324, 1335 (Fed. Cir. 2014)); see Crane &

Co. v. Department of the Treasury, CBCA 4965, 16-1 BCA ¶ 36,539, at 178,004 (discussing

requirements for constructive change claims). Unless the Government “effect[s] an

alteration in the work to be performed,” “the doctrine of constructive change cannot be

invoked against the Government.” Bell/Heery, 739 F.3d at 1335.

In evaluating the change component, we must first determine what the contract

actually required and then determine whether the work actually performed was “in addition

to or different from that required.” Miller Elevator, 30 Fed. Cl. at 678. To determine what

the contract required, we look to the plain language of the contract itself, interpreted in

accordance with widely accepted contract interpretation principles. Parkview Engraving

LLC v. Department of Veterans Affairs, CBCA 1564, 10-1 BCA ¶ 34,372, at 169,729. If

the Government was merely exercising its “right to insist on performance in strict

compliance with the contract specifications,” as properly interpreted, there is no “change”

upon which to build a constructive change claim. NavCom Defense Electronics, Inc. v.

England, 53 F. App’x 897, 900 (Fed. Cir. 2002). “Contract interpretation is a legal question

that is often resolved by summary disposition.” CFP FBI-Knoxville, LLC v. General

Services Administration, CBCA 5210, 17-1 BCA ¶ 36,648, at 178,474.

B.

The Contract’s Storage Requirement

We have struggled to identify the “change” that VSE alleges occurred in light of the

ATF contract language. The contract says that, under CLIN 0006, VSE would be paid a

fixed amount of $1.95 “[p]er square foot per month” to secure, store, and manipulate

hazardous items. Exhibit 1 at 131. VSE does not dispute that it was paid that amount for

the Covington seizure.4 Further, CLIN 0006 expressly indicates that it covers “storage

facility (bunker) and warehouseman costs” and that the hazardous items covered by CLIN

0006 “include explosives and fireworks.” Id. The Covington seizure storage utilized

bunkers and warehousemen. On its face, the CLIN 0006 monthly fee payments satisfied

ATF’s contractual obligations for monthly storage under the contract.

VSE argues that it did not anticipate that it would have to store the Covington seizure

for eight years, which includes the three years that the seizure was being stored under the

4

VSE asserts that there is a dispute about how ATF should have measured square

footage – that is, whether measurement is from exterior-end-to-exterior-end or interior-endto-interior-end. We will discuss that issue later in this decision.

CBCA 5116

26

terms of VSE’s prior contract with Treasury. During the three years of Covington seizure

storage under that predecessor Treasury contract, Heritage increased the amount it was

charging VSE to $0.195 per pound, but VSE submitted a proposal for the successor

ATF/DOJ contract with a CLIN 0006 price of $0.10 per pound, an amount less than what

Heritage was already charging VSE. At the same time, VSE failed to execute a subcontract

with Heritage, meaning that VSE had no way to control what Heritage would charge in the

future. When Heritage later increased its charges to VSE, VSE had no legal right to a lower

charge. Further, although VSE was entitled under the solicitation to propose

transition/phase-in costs (for inclusion in the successor contract price) that would have

allowed VSE to transfer the Covington fireworks from Heritage’s facility to a lower-cost

facility, VSE proposed no such costs. VSE cannot blame ATF for its own decision to bid

a CLIN 0006 amount below its anticipated costs.

VSE asserts that there is a factual dispute between the parties over “when the parties

expected a disposition order [from the district court] for the Covington Fireworks (and the

corresponding termination of their storage at Heritage),” which, it asserts, precludes

summary relief. Appellant’s Response at 6; see id. at 8 (“the issue of when ATF and VSE

anticipated disposition of the Covington Fireworks is in dispute”). Yet, “the mere existence

of some alleged factual dispute between the parties will not defeat an otherwise properly

supported motion for summary judgment; the requirement is that there be no genuine issue

of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48 (1986). “Only

disputes over facts that might affect the outcome of the suit under the governing law will

properly preclude the entry of summary judgment. Factual disputes that are irrelevant or

unnecessary will not be counted.” Id. at 248. VSE’s expectations about how long the

Covington seizure might remain in storage are relevant only if its contract tied VSE’s

storage obligations to the length of the district court action. If ATF was entitled to continue

to store seized property under VSE’s contract (with payment of the monthly contractual

charge) even after a district court had authorized disposal, which it was, any factual dispute

about VSE’s district court action expectations is irrelevant to ATF’s summary relief motion.5

5

Citing to CLINs 0010 and 0011 in the successor contract, which might be viewed

as providing for cost reimbursement (like the travel and administrative costs in CLIN 0010

that are “TBD”), VSE argues that whether its contract as a whole is a firm-fixed-price

contract is a “material fact in dispute” that precludes summary relief. Appellant’s Sur-Reply

at 5-7. The only relevant issue, though, is whether CLIN 0006 is a firm-fixed-price CLIN,

and there is no dispute that it is. Further, absent ambiguous contract language, matters of

contract interpretation raise questions of law that do not depend upon the parties’ subjective

beliefs. CH2M Hill Hanford Group, Inc. v. Department of Energy, CBCA 1187, 08-2 BCA

¶ 34,002, at 168,152. VSE has not raised a factual dispute that precludes summary relief.

CBCA 5116

27

VSE next asserts that, although the Droganes district court issued a disposition order

in 2013, ATF did not actually dispose of the Covington fireworks and empty Heritage’s

facility until August 2015. It argues that, at the very least, ATF was required to remove the

Covington seizure promptly after the 2013 disposition order and that its failure to do so

should create a right to complete cost reimbursement for any post-2013 storage costs. ATF

asserts that the delay between December 2013 and August 2015 involved negotiating a

possible destruction contract with Heritage, but we need not resolve the reasons for the time

gap. VSE’s contract is simply for storage, paid at a monthly rate. As VSE acknowledged

during oral argument, the contract itself contains no language specifically tying the end of

storage to disposition orders issued by courts. Transcript at 102 (The Board: “[I]s there a

term in the contract that precludes ATF from just leaving [the fireworks] for that extra two

years?” Counsel for VSE: “There is not.”). The contract speaks of disposition orders not

from a court, but from the COTR. Exhibit 1 at 235. We cannot add limitations to ATF’s

storage rights that are not identified in the contract language.

C.

The Lack Of Contractual Time Limits

To support its argument that it reasonably believed that there would be a time limit

for storage of the Covington seizure, VSE points to ATF’s statement in the solicitation that,

“[o]n average, disposition is expected to occur within one year of seizure.” Exhibit 1 at 240.

VSE argues that, based upon this language, it expected the Covington seizure to be gone

within a year after contract award. See Transcript at 103. That language does not create a

right to monetary relief here, for the following reasons:

First, ATF did not assert or guarantee that every disposition of property would occur

within one year from the date of seizure. Instead, the solicitation identified only an expected

average. VSE has neither asserted nor presented any evidence to indicate that ATF’s

statement, conditioned by the language “[o]n average,” is actually incorrect. The Covington

seizure is the only one that VSE has identified as taking an extended period of time. VSE

represented at oral argument that, when bidding, its experience under the predecessor

Treasury contract had showed that, except for the Covington seizure, explosives storage

lasted anywhere from one month to twenty-four months, with an average of thirteen months.

Transcript at 59, 111. VSE has not alleged how what it refers to as the “aberrational”

Covington seizure actually impacted the “average” storage time under the successor DOJ

contract or what that average, combining storage for all seizures under the DOJ contract

together, was. The fact that storage of the Covington seizure lasted far longer than a year

does not necessarily render ATF’s estimate about averages in general wrong. Certainly,

VSE has placed no evidence in the record indicating that the stated average, when all

seizures are combined, was incorrect. And nothing in the contract indicates that, in defining

CBCA 5116

28

the average, there could not be some outliers that would require a significantly longer

storage period than other seizures.

Second, even if VSE were arguing that ATF’s estimate was wrong, it would not

provide a basis for an actionable claim. Although a contractor might recover damages under

a negligent estimate theory by showing “that the government’s estimates [of the amount of

work to be performed] were ‘inadequately or negligently prepared, not in good faith, or

grossly or unreasonably inadequate at the time the estimate was made,’” Agility Defense &

Government Services, Inc. v. United States, 847 F.3d 1345, 1350 (Fed. Cir. 2017) (quoting

Medart, Inc. v. Austin, 967 F.2d 579, 581 (Fed. Cir. 1992)), that theory typically applies to

estimates under requirements contracts. Such contracts “call[] for the government to fill all

its actual requirements for specified supplies or services during the contract period by

purchasing from the awardee, who agrees to provide them at the agreed price.” Medart, Inc.,

967 F.2d at 581. When an agency contemplates a requirements contract, the FAR requires

the solicitation “to provide offerors with a realistic estimate of workload,” and the contractor

may be entitled to an equitable adjustment if it is damaged by the solicitation’s failure to do

so. Agility Defense, 847 F.3d at 1350; see 48 CFR 16.503(a)(1) (in requirements contract,

“the contracting officer shall state a realistic estimated total quantity in the solicitation and

resulting contract”).

The contract at issue here is an IDIQ contract, not a requirements contract. Under an

IDIQ contract, the Government can select what and how much work to provide the

contractor, and the contractor is not guaranteed any work in excess of the guaranteed

minimum identified in the contract (up to an identified maximum quantity). Travel Centre

v. Barram, 236 F.3d 1316, 1319 (Fed. Cir. 2001). Although at least one tribunal has found

that a negligent estimate in an IDIQ contract might create a basis for monetary recovery in

certain limited instances, see Ravens Group v. United States, 112 Fed. Cl. 39, 50-53 (2013),6

an IDIQ contractor generally “cannot expect the kind of accuracy in estimation that it can

in a requirements or fixed price contract.” Dot Systems, Inc. v. United States, 231 Ct. Cl.

765, 769 (1982). As long as the Government satisfies its minimum quantity purchase

obligation and does not exceed the maximum quantity, it has satisfied its contractual

obligations, and any alleged negligence in estimating becomes generally irrelevant to the

parties’ rights. Travel Centre, 236 F.3d at 1319-20; National Housing Group, Inc. v.

Department of Housing & Urban Development, CBCA 340, et al., 09-1 BCA ¶ 34,043, at

168,378. Although VSE is complaining here about the length of individual seizure storage

6

It does not appear that the Government in Ravens Group argued that its quantity

obligations under an IDIQ contract were limited to the minimum and maximum quantity

figures contained in the contract.

CBCA 5116

29

rather than the quantity of separate seizures, VSE has not indicated how, had it not

underpriced CLIN 0006, any error in ATF’s estimated average length for storage of a seizure

would have negatively impacted its costs, given that, under the contract, VSE was entitled

to and was paid a fixed-price “per square foot” amount for every month of CLIN 0006

storage.

D.

ATF’s Alleged Refusal To Permit Transfer

Assuming that the contract does not impose a time limit for storage of a particular

seizure, VSE argues that ATF constructively changed the contract by precluding it from

“mov[ing] the Covington Fireworks from Heritage to another storage facility without ATF’s

approval and cooperation – which ATF refused to give,” meaning that “VSE had no choice

but to continue to use Heritage for the work and to pay Heritage far more than what was

anticipated at the time of the Contract award.” Appellant’s Response at 3. Although a

government direction that bars the contractor from exercising performance options available

to it under the terms of its contract could create a constructive change, DOT Systems, Inc.,

DOT CAB 1208, 82-2 BCA ¶ 15,817, at 78,383, VSE’s argument fails here for the

following reasons:

First, although VSE complains about the consent requirement, the contract clause

requiring ATF consent for any transport of seized property was there when the contract was

awarded, and VSE submitted its proposal with full knowledge of the consent requirement.

Such a requirement may impose upon ATF an obligation to act upon requests to transport

seized property in accordance with its duty of good faith and fair dealing, see Barseback

Kraft AB v. United States, 36 Fed. Cl. 691, 705 (1996) (party vested with discretion under

the contract must exercise that discretion reasonably and without improper motive), but it

does not shift to ATF all extra costs that VSE may incur as a result of its own failure to enter

into a binding subcontract with the storage facility in which it elected to leave seized goods.

VSE had the opportunity to include in its proposal for the successor contract the costs of

transferring the Covington seizure to another facility. VSE elected not to do so, even though

it knew that it was already paying Heritage more than what it was bidding for CLIN 0006

under the successor contract and that it had not been able to negotiate a subcontract with

fixed storage and handling prices with Heritage.7

7

VSE notes that, eventually, ATF agreed to transport of the Covington seizure at

ATF’s cost to a government facility in California, where destruction of the fireworks

occurred. Although VSE complains that ATF should have agreed to pay for transport earlier

than it did, the contract has separate provisions for storage under CLIN 0006 and disposition

of fireworks by destruction (inclusive of transport to the destruction site) under CLIN 0008.

CBCA 5116

30

Second, VSE asserts that ATF “refused to give” consent for a transfer from the

Heritage facility, but the record shows that the only time that VSE ever asked for such

consent was with the caveat that ATF pay for the transfer. Yet, the contract required the

contractor to pay for such transport. The only way that ATF would be responsible for such

costs would have been if VSE had included transport costs in its CLIN 0001

transition/phase-in proposal, which it did not. We review an agency’s response to a request

for contractually-required consent to transfer for reasonableness. American Ordnance LLC,

ASBCA 54718, 10-1 BCA ¶ 34,386, at 169,791. ATF’s failure to consent to a transfer that

would have imposed extra-contractual costs upon ATF is “within the bounds of

‘reasonableness’ as used in the context of reviewing discretionary action taken by a

government official.” England v. Systems Management American Corp., 38 F. App’x 567,

572 (Fed. Cir. 2002). VSE cannot complain that ATF declined to agree to pay

extra-contractual costs.

Third, to the extent that VSE is suggesting that it may have sought consent without

including a cost-shifting request, the only record evidence in support is a declaration from

VSE’s program manager, who avers that, “[t]o [her] knowledge, ATF never approved

VSE’s requests to relocate the Covington Fireworks to another storage vendor.” Declaration

of Diana T. Walsh (Apr. 7, 2016) ¶ 7. There is no detail about the alleged relocation

requests in the declaration, and no other evidence in the record supports any allegation that

VSE made requests to transfer the Covington seizure without a condition that ATF pay for

it. “It is well settled that ‘a conclusory statement on the ultimate issue,’” even if presented

in an affidavit or declaration, “‘does not create a genuine issue of fact.’” Applied Cos. v.

United States, 144 F.3d 1470, 1475 (Fed. Cir. 1998) (quoting Imperial Tobacco Ltd. v.

Philip Morris, Inc., 899 F.2d 1575, 1581 (Fed. Cir.1990)).

Fourth, the district court in Heritage, whose factual findings are binding on VSE

through collateral estoppel, found that VSE was able to find only one other facility in the

United States willing and able to take the Covington seizure and that the facility was

charging almost twice as much as Heritage. As a result, even had ATF improperly denied

consent to transfer, VSE would not have been prejudiced by that denial because it could not

realistically have moved the Covington seizure from Heritage to a lower-priced facility.

“Evidence of some damage resulting from the [alleged] change or other claim event is

Exhibit 1 at 232-33. When it came time to dispose of the fireworks through destruction,

ATF attempted to negotiate a method of and price for destruction with Heritage, but ATF

and Heritage could not reach agreement. ATF ultimately paid a different contractor to

transport the fireworks to the destruction site. The language of VSE’s contract does not

permit VSE to complain that ATF did not elect transport earlier than it did.

CBCA 5116

31

necessary to establish entitlement.” Corners & Edges, Inc. v. Department of Health &

Human Services, CBCA 648, 07-2 BCA ¶ 33,706, at 166,892. The appellant “must show

that but for the breach [or constructive change], the damages alleged would not have been

suffered.” San Carlos Irrigation & Drainage District v. United States, 111 F.3d 1557, 1563

(Fed. Cir. 1997). The Heritage court’s factual findings establish that VSE cannot prove

damage as a result of the consent requirement, meaning that any withholding of consent, if

it occurred, did not prejudice VSE.

E.

Whether ATF Misled VSE

VSE’s program manager avers in her declaration that both ATF and VSE expected

the Covington fireworks to be destroyed soon after the September 24, 2010, successor

contract was awarded and that “VSE relied on ATF’s representations that the Covington

Fireworks would be destroyed – or disposed of by other means – shortly after award of the

Contract.” Walsh Declaration ¶ 6. Because ATF misled VSE into believing during contract

performance that the Covington seizure would soon and quickly be destroyed, VSE argues,

the misrepresentation caused VSE to keep the Covington seizure with Heritage for what it

believed would be a short time (to avoid incurring expensive transport costs that would

exceed the costs of short-term continued storage at Heritage), which ultimately resulted in

massive cost overruns because of the extended storage period.

We recognize that government efforts to mislead a contractor through subterfuges and

evasions can breach the Government’s contractual obligation to act in good faith. Malone

v. United States, 849 F.2d 1441, 1445-46 (Fed. Cir. 1988). Here, though, the record is clear

that, contrary to the declarant’s conclusory statement, ATF made no false promises about the

district court action. In its statement of genuine issues, all of the “promises” that VSE says

ATF made about the “imminent disposition” of the fireworks through the Droganes district

court action are merely predictions of the speed at which the district court might act, not

promises of a specific date or deadline by which the Covington seizure would definitely be

moved. In any event, the district court’s findings make clear that, even if ATF had made a

promise about a definite destruction deadline and/or affirmatively misled VSE about how

long the Covington seizure would remain, VSE would not have been prejudiced by that

promise because there was no other location to which VSE could have moved the seizure

at a lesser monthly cost.

F.

VSE’s Other Constructive Change Arguments

VSE complains that “ATF pays VSE the same flat monthly rate under CLIN 0006”

for all hazardous item storage throughout the country (beyond just the Covington seizure),

“regardless of the size, volatility, or complexity of the hazardous items to be stored, or the

CBCA 5116

32

duration of that storage,” Complaint ¶ 12, which VSE contends should affect the manner in

which its contract is interpreted. Yet, VSE was, or should have been, well aware of that

when it submitted its offer for the ATF contract. To the extent that VSE was concerned

about the ATF contract’s pricing mechanisms or thought that they were unfair, the time for

it to have complained was before it entered into the contract. See Beacon Construction Co.

of Massachusetts v. United States, 314 F.2d 501, 504 (Ct. Cl. 1963) (contractor must

complain or protest prior to contract award about any problems with proposed contract terms

of which it is actually aware). It is too late to rewrite the contract terms after award.

VSE asserts that there is another CLIN, which is titled “Other Direct Costs,” that is

a better fit for its Covington seizure storage costs than CLIN 0006 and that it should be

allowed to recover its extra costs under that CLIN. It is unclear whether we possess

jurisdiction to entertain this argument, which VSE presented in its first certified REA, dated

March 17, 2015. VSE did not identify or attach that REA or the contracting officer’s

decision responding to it to its notice of appeal. Assuming that the argument is

encompassed within the second certified REA that is on appeal, we would have to reject it.

CLIN 0006 covers the costs to secure, store, and manipulate hazardous items, and it

expressly indicates that those hazardous items “include explosives and fireworks” and that

the covered costs include “storage facility (bunker) and warehouseman costs.” Id. Although

CLIN 0010, the “Other Direct Costs” CLIN, provides for an amount to be determined by the

Government upon award, which VSE believes can provide for full cost-reimbursement for

its Heritage storage costs, the contract explains that “Other Direct Costs” relate to

“conference fees, travel costs, and per diem expenses associated with ATF-requested special

meetings, conferences, briefings, and events related to this Contract.” Exhibit 1 at 126. We

cannot interpret the contract as permitting VSE to extract the costs of hazardous item storage

out of CLIN 0006 and move them to a CLIN that was intended to cover administrative and

travel costs.

It is clear that the real reason for VSE’s cost overruns was the absence of a

subcontract with Heritage, which left VSE subject to Heritage’s whims regarding future

pricing. Further, inexplicably, VSE elected to bid CLIN 0006 for the successor ATF

contract at a price far below what it was already paying Heritage under its predecessor

contract. Having entered into a fixed-price CLIN that it underbid, VSE cannot viably

complain that ATF actually used the services for which it had contracted. It was not ATF’s

contractual obligation to expend additional monies of its own to save VSE from a bad

bargain that VSE had created for itself.

We grant ATF’s motion for summary relief on VSE’s constructive change claim.

CBCA 5116

V.

33

VSE’s Newly Raised Legal Theories

A.

VSE’s Superior Knowledge Theory

In its amended complaint, filed April 26, 2017, VSE added a count to its original

complaint alleging a breach by ATF of its duty to disclose superior knowledge to VSE prior

to contract award. VSE asserts that, when ATF issued an amended solicitation on March 10,

2010, ATF knew (a) that it was already in contempt of the 2008 Droganes court order

requiring it to inventory and return the Covington fireworks and (b) that it had no intention

of complying with the order. VSE alleges that it “undertook to perform the Contract without

vital knowledge of the ATF’s unwillingness to comply with the Droganes Court’s orders,

which greatly affected the costs to VSE of performance and the duration of performance.”

Amended Complaint ¶ 51.

“Although a contractor, when proceeding before this Board, may increase the amount

of [a] claim” previously submitted to the contracting officer, “it ‘may not raise any new

claims not [previously] presented and certified to the contracting officer.’” Crane & Co.,

16-1 BCA at 178,003 (quoting Santa Fe Engineers, Inc. v. United States, 818 F.2d 856, 858

(Fed. Cir. 1987)). “In determining whether a contractor’s attempt to alter the legal theories

underlying its claim constitutes a ‘new’ claim, tribunals ‘look at whether the new issue is

based on the same set of operative facts’ as the claim submitted to the contracting officer.”

Id. (quoting Foley Co. v. United States, 26 Cl. Ct. 936, 940 (1992), aff’d, 11 F.3d 1032 (Fed.

Cir. 1993)). “Operative facts are the essential facts that give rise to a cause of action,” id.

(quoting Kiewit Construction Co. v. United States, 56 Fed. Cl. 414, 420 (2003)), and “[a]

claim is new when it ‘present[s] a materially different factual or legal theory’ of relief.”

Lee’s Ford Dock, Inc. v. Secretary of the Army, 865 F.3d 1361, 1369 (Fed. Cir. 2017)

(quoting K-Con Building Systems, Inc. v. United States, 778 F.3d 1000, 1006 (Fed. Cir.

2015)).

We determine whether newly asserted legal theories involve the “same set of

operative facts” as those set forth in the underlying claim by reference to whether the

elements necessary to establish those new theories are essentially the same or interrelated

with those associated with the original claim. Crane & Co., 16-1 BCA at 178,004-05. This

standard “does not require [rigid] adherence to the exact language or structure of the original

administrative [Contract Disputes Act (CDA)] claim.” Scott Timber Co. v. United States,

333 F.3d 1358, 1365 (Fed. Cir. 2003). “[M]erely adding factual details or legal

argumentation does not create a different claim, but presenting a materially different factual

or legal theory (e.g., breach of contract for not constructing a building on time versus breach

of contract for constructing with the wrong materials) does create a different claim.” K-Con

Building Systems, 778 F.3d at 1006.

CBCA 5116

34

In the claim underlying this appeal, dated August 10, 2015, VSE detailed the reasons

that, because ATF had required VSE to store the Covington seizure for far longer than

contemplated by the contract, ATF was responsible for a constructive change. VSE alleged

that “[n]either ATF, VSE, nor Heritage anticipated that the Covington seizure would need

to be stored for seven years” and that VSE did not factor that lengthy storage requirement

into its price proposal. As previously discussed, to establish a constructive change, a

contractor must show that, during contract performance, the contracting officer ordered

some service not required by the contract and, through government fault, somehow altered

or expanded the contractor’s contractual performance obligations. Embassy Moving &

Storage Co. v. United States, 424 F.2d 602, 607 (Ct. Cl. 1970); Crane & Co., 16-1 BCA at

178,004. A superior knowledge claim, on the other hand, focuses in large part upon the

Government’s knowledge of vital information prior to contract award and its failure to share

it with an unknowing contractor. Yates-Desbuild Joint Venture v. Department of State,

CBCA 3350, et al., 17-1 BCA ¶ 36,870, at 179,687. Nothing in the claim that VSE

submitted on August 10, 2015, addresses an illicit intent by ATF pre-dating the award of the

ATF contract at issue here to withhold information from VSE. Further, nothing in the claim

letter provides the contracting officer with notice that such pre-award intentions and

knowledge are a part of and relevant to VSE’s constructive change claim, meaning that the

contracting officer would have been unaware that he needed to decide them. See Contract

Cleaning Maintenance, Inc. v. United States, 811 F.2d 586, 592 (Fed. Cir. 1987) (claim

must provide contracting officer with “adequate notice of the basis and amount of the

claim”). In such circumstances, VSE’s August 2015 claim cannot be said to encompass the

operative facts underlying VSE’s newly asserted superior knowledge theory.

The defect in VSE’s attempt to allege a superior knowledge theory before the Board

is very similar to the situation that the Court of Appeals for the Federal Circuit recently

considered in Lee’s Ford Dock, Inc. v. Secretary of the Army, 865 F.3d 1361 (Fed. Cir.

2017). There, the contractor alleged facts in its original claim supporting legal theories of

mutual mistake and frustration of purpose, asserting that the parties mutually failed to

envision when they entered their lease contract that a dam would draw a lake’s water level

down to the extremely low level that it did for an extended period of time and had only

anticipated a short-term draw down. In proceedings before the Armed Services Board of

Contract Appeals that formed the basis of the appeal to the Federal Circuit, though, the

contractor added a reformation claim, asserting that, prior to contract execution, the agency

had misrepresented the condition of the dam by failing to disclose the dam’s deteriorated

state. The Federal Circuit held that the contractor’s original factual allegation – that the

agency held a “supposed mistaken belief” about the dam’s condition – did “not suggest, and

[is] in fact logically inconsistent with, the very different notion that the [agency] knowingly

misrepresented the state of the dam.” Id. at 1370; see K-Con Building Systems, 778 F.3d at

CBCA 5116

35

1006 (a claim for “breach of contract for not constructing a building on time” is different

from a claim of “breach of contract for constructing with the wrong materials”).

“Jurisdiction [to entertain a contract appeal under the CDA] requires both that a claim

meeting certain requirements have been submitted to the relevant contracting officer and that

the contracting officer have issued a final decision” – either in writing or by “deemed

denial” – “on that claim.” K-Con Building Systems, 778 F.3d at 1005. VSE has not

presented a claim to the contracting officer based upon operative facts supporting its

superior knowledge theory. Accordingly, we must dismiss VSE’s superior knowledge

theory for lack of jurisdiction.

B.

VSE’s Implied Duty of Good Faith Theory

In its amended complaint, VSE also added a count alleging a breach by ATF of the

covenant of good faith and fair dealing, asserting that “ATF breached that covenant by its

unreasonable delay in inspecting and destroying the [Covington] Fireworks, in violation of

the Droganes Court’s order and in bad faith, while VSE was monthly losing money on the

storage of the Fireworks.” Amended Complaint ¶ 46.

To the extent that VSE is alleging bad faith by ATF, it did not mention bad faith in

its claim to the contracting officer. To establish bad faith by the Government, “a contractor

must establish, by clear and convincing evidence, that a government official acted with

‘some specific intent to injure the [contractor].’” CAE USA, Inc. v. Department of

Homeland Security, CBCA 4776, 16-1 BCA ¶ 36,377, at 177,349 (quoting Am-Pro

Protective Agency, Inc. v. United States, 281 F.3d 1234, 1240 (Fed. Cir. 2002)). VSE does

not allege or discuss in its claim any intent by ATF to harm VSE or a need for the

contracting officer to evaluate whether anyone within ATF acted with an intent to harm

VSE. Accordingly, we lack jurisdiction to entertain a bad faith claim here.

Even if we were to consider the bad faith argument, it would have to fail. The only

“bad faith” that VSE alleges is the bad faith that the district court found in Droganes: that

ATF took too long to respond to and fully comply with court orders and that ATF was not

completely forthright about whether the legal 1.4G fireworks in the Covington seizure had

deteriorated to the point that they could not be returned to Mr. Droganes. VSE has not

placed any evidence of that bad faith in the record of this appeal, but instead relies solely on

citations to the magistrate’s and district court judge’s decisions in Droganes. As previously

discussed, because VSE was not a party to the Droganes action, VSE cannot bind ATF, as

an agency of the United States, to the district court’s findings through collateral estoppel and

cannot even submit the findings as evidence in opposition to ATF’s summary relief motion.

See Jones, 29 F.3d at 1554; American Federation of Government Employees, 835 F.2d at

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1462. Further, the bad faith that the district court found ran either to the district court or to

Mr. Droganes, rather than VSE. The mere fact that ATF may have acted in bad faith

towards Mr. Droganes does not entitle VSE to a presumption that ATF was also

intentionally seeking to harm VSE. See Kalvar Corp. v. United States, 543 F.2d 1298, 1302

(Ct. Cl. 1976) (bad faith requires “evidence of some specific intent to injure the plaintiff”);

Librach v. United States, 147 Ct. Cl. 605, 614 (1959) (no evidence that transactions were

“actuated by animus towards the plaintiffs”). The record here is devoid of any evidence that

ATF was acting with an intent to harm VSE. Absent some showing of evidentiary support

from VSE in support of such an allegation, summary relief in ATF’s favor would be

warranted if we possessed jurisdiction over the bad faith issue. See Mingus Constructors,

812 F.2d at 1390-91 (conclusory statements that evidence exists are insufficient to defeat

summary relief); Levi Strauss & Co. v. Genesco, Inc., 742 F.2d 1401, 1404 (Fed. Cir. 1984)

(argument and assertions of counsel, without evidence, do not create genuine issue of

material fact).

Nevertheless, a claim that the Government breached the implied duty of good faith

and fair dealing does not require an affirmative showing of bad faith. Sigma Services, Inc.

v. Department of Housing & Urban Development, CBCA 2704, 12-2 BCA ¶ 35,173, at

172,591. The implied duty of good faith and fair dealing “requires a party to refrain from

interfering with another party’s performance or from acting to destroy another party’s

reasonable expectations regarding the fruits of the contract.” CAE USA, Inc., 16-1 BCA at

177,347 (quoting Bell/Heery v. United States, 739 F.3d 1324, 1334-35 (Fed. Cir. 2014)).

“‘[P]arties can show a breach of the implied duty of good faith and fair dealing by proving

lack of diligence, negligence, or a failure to cooperate,’ meaning that ‘[e]vidence of

government intent to harm the contractor is not ordinarily required.’” Id. (quoting

TigerSwan, Inc. v. United States, 110 Fed. Cl. 336, 345-46 (2013)).

On a jurisdictional level, VSE’s newly added implied duty theory fares better than

VSE’s superior knowledge and bad faith theories. Although VSE’s certified claim does not

mention a lack of good faith, VSE alleged in its claim that it was losing money every month

that it had to continue to store fireworks with Heritage and that ATF had directed VSE to

keep the fireworks at Heritage’s site despite that fact. That is enough for us to find that ATF

was, or should have been, on notice of this argument when it received VSE’s claim.

On the merits, though, VSE’s good faith and fair dealing argument cannot survive

ATF’s motion for summary relief. “[T]he good faith and fair dealing duty ‘is not limitless’”

and “does not entitle contractors to extra-contractual benefits, or require the Government to

take extra-contractual steps,” as a courtesy to the contractor. CAE USA, Inc., 16-1 BCA at

177,350 (quoting West Run Student Housing Associates, LLC v. Huntington National Bank,

712 F.3d 165, 170 (3d Cir. 2013)); see Precision Pine & Timber, Inc. v. United States, 596

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F.3d 817, 831 (Fed. Cir. 2010) (“The implied duty of good faith and fair dealing cannot

expand a party’s contractual duties beyond those in the express contract or create duties

inconsistent with the contract’s provisions.”). It “does not obligate the Government to assist

a contractor” outside the requirements of its contract “by taking positive actions” that the

contract does not require. Excel Services, Inc., ASBCA 30565, 85-3 BCA ¶ 18,369, at

92,159. “If the Government is not contractually obligated to do certain things, it is not

financially liable – under a breach of contract theory – for failing to do them.” CAE USA,

Inc., 16-1 BCA at 177,350.

Here, VSE is complaining that, beginning on the very first day of performance under

the successor contract, it incurred extra costs for which ATF is responsible. VSE had been

storing the Covington seizure under its Treasury contract for almost three years before it

submitted a proposal for the successor contract, yet it offered a fixed-price-per-square-foot

for CLIN 0006 on the successor contract that was far below what it was already paying

Heritage for such storage. At the same time, VSE failed to enter into a subcontract with

Heritage, even though it proposed to leave the Covington seizure in Heritage’s facility,

exposing itself to Heritage’s unilateral price increases. When ATF accepted VSE’s

proposal, it created a contract allowing ATF to order storage of hazardous products pursuant

to CLIN 0006 at a fixed price of $1.95 per square foot for each month that storage was

necessary. VSE has identified no theory of recovery that would require ATF, despite that

contract right, to pay more. VSE cannot intentionally underprice its contract at amounts far

below its actual costs and then immediately blame the Government for its losses. ATF did

not cause VSE to lose money on CLIN 0006. VSE, by failing to propose a price that would

cover its costs and by failing to negotiate a subcontract with Heritage before proposing that

price, caused its own damage.

C.

VSE’s Commercial Impracticability Theory

VSE also added a commercial impracticability theory to its April 2015 amended

complaint. It asserts, as part of its constructive change count, that “ATF’s unreasonable and

bad faith delay in performing its obligations, in violation of the [Droganes] court’s order,

rendered the performance of the Contract by VSE commercially impracticable, constituting

a constructive change to the Contract.” Amended Complaint ¶ 42.

Commercial impracticability claims fall into two categories: (1) “existing”

impracticability, “which is based on facts in existence at the time the contract was made,”

and (2) “supervening” impracticability, “where impracticability results from events

occurring after contract formation.” John Cibinic, Jr., James F. Nagle & Ralph C. Nash, Jr.,

Administration of Government Contracts 289 (5th ed. 2016); see Restatement (Second) of

Contracts §§ 261, 266 (1981) (comparing existing and supervening impracticability

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doctrines). Because VSE’s argument is based upon the latter, we limit our discussion to the

legal requirements applicable to supervening impracticability.

“[W]here, after a contract is made, a party’s performance is made impracticable

without his fault by the occurrence of an event the non-occurrence of which was a basic

assumption on which the contract was made, his duty to render that performance is

discharged, unless the language or the circumstances indicate the contrary.” United States

v. Winstar Corp., 518 U.S. 839, 904 (1996) (quoting Restatement (Second) of Contracts

§ 261); see International Business Aircraft, Inc., ASBCA 30904, 88-1 BCA ¶ 20,419, at

103,281 (1987) (“where contract performance becomes impossible without the fault or

negligence of the contractor, the failure to perform is excusable”). “A contract is

commercially impracticable when performance would cause ‘extreme and unreasonable

difficulty, expense, injury, or loss to one of the parties.’” Raytheon Co. v. White, 305 F.3d

1354, 1367 (Fed. Cir. 2002) (quoting Restatement (Second) of Contracts § 261 cmt. d).

Although sometimes “treated as a type of constructive change to the contract,” id., the theory

differs from a traditional constructive change theory because it is “not premised on

government breach or government fault.” John Cibinic, Jr., James F. Nagle & Ralph C.

Nash, Jr., supra, at 289. “Instead, the contractor is relieved from its agreement to perform

because performance is found to be greatly different from what was expected.” Id. It is

entitled to compensation under a constructive change theory if the Government either has

assumed the risk of the supervening impracticability or has ordered the contractor to

continue performing after learning of the excusable supervening impracticability. Al

Khudhairy Group, ASBCA 56131, et al., 10-2 BCA ¶ 34,530, at 170,293-94.

A contractor must establish four factors to recover monetary relief on a commercial

impracticability claim:

To avail itself of this defense, [a contractor] must show that (1) a supervening

event made performance impracticable; (2) the non-occurrence of the event

was a basic assumption upon which the contract was based; (3) the occurrence

of the event was not [the contractor’s] fault; and (4) [the contractor] did not

assume the risk of the occurrence of the supervening event.

Hearthstone, Inc. v. Department of Agriculture, CBCA 3725, 15-1 BCA ¶ 35,895, at

175,479 (citing Seaboard Lumber Co. v. United States, 308 F.3d 1283, 1294 (Fed. Cir.

2002)).

VSE’s commercial impracticability argument is based not upon an allegation of an

independent supervening event that caused its costs to increase, but upon alleged conduct

by ATF that breached or changed its contract. That is not the type of “supervening event”

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that the commercial impracticability doctrine was intended to cover. “Events that come

within the [supervening impracticability theory] are generally due either to ‘acts of God’ or

to acts of third parties.” Restatement (Second) of Contracts § 261 cmt. d. “If the event that

prevents the obligor’s performance is caused by the obligee, it will ordinarily amount to a

breach by the latter,” for which breach damages or an equitable adjustment are available.

Id. As we have previously found, VSE cannot establish a constructive change, or breach,

to the terms of its contract. Because its claim is based solely upon ATF’s alleged actions in

breach, it has failed to state a viable commercial impracticability claim.

Even if VSE properly alleged a viable supervening commercial impracticability,

VSE’s claim would still fail under the third and fourth prongs of the test for recovery. The

wide disparity between what VSE charged ATF under CLIN 0006 and what VSE had to pay

Heritage for CLIN 0006 storage was the result of (1) VSE’s failure to negotiate a

subcontract with Heritage, which allowed Heritage to charge VSE whatever it wanted, and

(2) VSE’s decision to propose a CLIN 0006 price far below what it was already paying

Heritage at the time it submitted its proposal. Plainly, the fault for VSE’s losses on CLIN

0006 storage each month falls upon VSE. In addition, by agreeing to a fixed-price “per

square foot” amount under CLIN 0006, VSE assumed the risk of any cost increases for the

services that it had agreed to provide. See Safety Training Systems, Inc., ASBCA 57095,

et al., 14-1 BCA ¶ 35,509, at 174,052 (“a fixed-price contract assigns any increase in costs

to the contractor, thereby insulating the government from price fluctuations”). VSE’s

commercial impracticability claim is denied.

D.

Method of Measuring Square Footage

In its response to ATF’s motion for summary relief, VSE asserted that summary relief

could not be granted because “VSE has disputed with ATF the proper method to measure

square footage and bill for the storage of the Covington Fireworks,” indicating that “VSE

believed that square footage should be based on the outside dimension of the bunkers” while

“ATF believed that [it] should be based on the inside dimension of the bunkers.”

Appellant’s Response at 10. That factual disagreement, it asserts, precludes summary relief

here.

There is nothing in VSE’s claim that purports to identify a dispute about the manner

in which square footage is measured under the contract. The sole issue there is whether the

extensive length of the Covington seizure storage was contemplated by the parties and

whether VSE is entitled to compensation for that alleged constructive change. We lack

jurisdiction to entertain the square footage measurement dispute as part of this appeal. See

Crane & Co., 16-1 BCA at 178,003-04.

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Decision

For the foregoing reasons, VSE’s requests for damages under superior knowledge

and bad faith theories, as well as its alleged dispute regarding the manner in which square

footage was calculated, are DISMISSED FOR LACK OF JURISDICTION. VSE’s

requests for damages under constructive change and breach of implied duty of good faith

and fair dealing theories are DENIED.

_________________________________

HAROLD D. LESTER, JR.

Board Judge

We concur:

________________________________

PATRICIA J. SHERIDAN

Board Judge

________________________________

JONATHAN D. ZISCHKAU

Board Judge