Petition for Writ of Certiorari — Cessna Aircraft Co. v. Dalton

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Court, U.S

171930 May 26 t0y

OFFICE OF TH

No. 97- E CLERK

IN THE

Supreme Court of the Anited States

OCTOBER TERM, 1997

THE CESSNA AIRCRAFT COMPANY,

Petitioner.

JOHN H. DALTON, SECRETARY OF THE NAVY,

Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Federal Circuit

PETITION FOR WRIT OF CERTIORARI

HERBERT L. FENSTER*

JEREMY M. GRIFFIN

MCKENNA & CUNEO, L.L.P.

1900 K Street, N.W.

Washington, D.C. 20006

(202) 496-7500

Counsel for Petitioner

*Counsel of Reccrd

PRESS OF BYRON S. ADAMS # WASHINGTON, D.C. # 1-800-347-8208

QUESTIONS PRESENTED

Whether an Executive Branch agent can obligate and spend

newly appropriated funds before the President has apportioned

those moneys as required by statutes intended to effect Congress'

plenary authority under Article I, Section 9, Clause 7 of the

Constitution?

Whether a valid contract can exist notwithstanding the fact that

it is based on violations of statutes and regulations governing the

obligation of funds from the Treasury?

Whether a contractor has standing to challenge the validity of a

contract that was based on a violation of statutes and regulations

and that caused financial harm to that contractor?

RULE 29.6 STATEMENT

Petitioner The Cessna Aircraft Company is a wholly-owned

subsidiary of Textron Inc.

ill

TABLE OF CONTENTS

QUESTIONS PRESENTED ............::::::ccsesssesessessesneeeeeentntneneneenenes I

RULE 29.6 STATEMENT..........ccccssscssssccsssensstecsresersesnsnossnenesnsees I]

TABLE OF CONTENTS .........:cssscsscscossssssssesssestneeeccsonsessnnsoensees II]

TABLE OF AUTHORITIEG..............::ccsscssseeesseersreserssenseeeeneneeens VI

OPINIONS BELOW .......0::00.0ccccccscsssscssscccsssessvecersssnecsnsvscsnnsonsacores 2

JURISDICTION ...00.0000c:..ccccccccocccssscessseosscsssnesersceosoensnssnscssanerecnssenes 2

CONSTITUTIONAL, STATUTORY AND

REGULATORY PROVISIONS INVOLVED ..........::::essese0 2

STATEMENT OF THE CASE ..........cccccsesecesseneeeeneeseeeseesesneneeenes 3

A. The Statutory Scheme Enacted By Congress To

Implement Article I, Section 9, Clause 7

l. The History Of The Anti-Deficiency Act

y Congress Requires The Executive To Apportion

Appropriated Moneys

i} The Federal Circuit Decision

B. Background Of The Case

3 This Litigation

REASONS FOR GRANTING THE WRIT..........:.::ceeeeee 13

A. The Actions Of The Navair Contracting Officer Frustrated

The Purpose Of Laws Intended To Protect The Treasury.

B. This Court's Precedent Hold That Contracts Executed In

Violation Of The Law Cannot Be Enforced. 22

i The Court Of Appeals Ruling On Standing Conflicts W ith

The Law Of This Court And Other Circuit Courts Of

Appeal. 23

COINCLIUISIOIN onc caccsccsccsssccccccesssescrssescsccssserserscssertearessesseearosenonens 27

APPENDIX A (Cessna Aircreft Co. v. Dalton,

MO. 96-4 155 (Ped. Cat. Oct. 6. 1997 cc cicccctipertictossannces la

APPENDIX B (Cessna Aircraft Co. v. Dalton,

ASCBA No. 43196 (March 12, 1993) ..iscscecciccsesscssiseccocsoreess Ib

APPENDIX C (Cessna Aircraft Co. v. Dalton,

ASCBA No. 43196 (September 21, 1995) ow... ee eeeeeeeees le

APPENDIX D (Cessna Aircraft Co. v. Dalton, No. 96-1085

ER COPINEY 2 Fe PRO) ixincctiwcchawinncs cians idan oernebananeiieks ld

APPENDIX E (setting forth verbatim the following

statutory provisions: An Act in addition to the several

acts for the establishment and regulation of the Treasury,

War and Navy Departments, ch. 52, 3 Stat. 567(1820);

An Act making Appropriations for the legislative,

executive, and Judicial Expenses of the Government for

the Year ending the thirtieth of June, eighteen hundred

and seventy one, ch. 251, § 7, 16 Stat. 230, 251 (1870);

An Act Making appropriations to supply deficiencies in

the appropriations for the fiscal year ending June

thirtieth, nineteen hundred and five, and prior years, and

for other purposes, ch. 1484, § 4, 33 Stat. 1214, 1257

(1905); General Provisions of the General Appropriations

Act of 1951, ch. 896, § 1211, 64 Stat. 763, 765 - 768

(1950); 31 U.S.C. §§ 1341, 1511-1519 (1994)) oe. le

APPENDIX F (setting forth verbatim the following

regulatory provisions: Department of Defense Directive

7200.1 (May 7, 1984); Department of Defense

Accounting Manual (Feb. 1988); Navy Comptroller

INE cari seers bo cca siclacie hdauiacealewhcieh aaclacidatobachintanccbkaastaantoas If

TABLE OF AUTHORITIES

CASES Page

American Farm Lines v. Black Ball Freight Serv., 397

U.S. 532 (1970) 28

Applied Devices Corp. v. United States, 591 F.2d

635 (Ct. Cl. 1979) 26

Association of Data Processing Service Org., v. Camp,

397 U.S. 150 (1970) 27

B.K. Instrument, Inc. v. United States, 715 F.2d 713

(2d Cir. 1983) 27

Cessna Aircraft Co. v. Dalton, No. 96-1185, 126 F.3d

1442 (Fed. Cir. 1997) 2

Chris Berg, Inc. v. United States, 426 F.2d 314 (Ct. te

1970) 26

Clark v. United States, 95 U.S. 539 (1877) 9, 25

Clinton v. City of New York, 118 S. Ct. 1551 (1998) 16

Commissioner v. Asphalt Prod. Co., 482 U.S.

117 (1987) 24

Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380

(1947) 25

Harrington v. Bush, 553 F.2d 190 (D.C. Cir. 1977) 15

Hartford Accident & Indem. Co. v. United States, 127

F. Supp. 565 (Ct. Cl. 1955) 26

Hayes Int'l Corp. v. McLucas, 509 F.2d 247 (Sth

Cir. 1975) 27

Hercules, Inc. v. United States, 116 S. Ct. 981

(1996) passim

Hooe v. United States, 218 U.S. 322 (1910) 6, 16

Housing and Home Finance, 37 Comp. Gen, 220

(1957) 17

LaBarge Prod., Inc. v. West, 46 F.3d 1547 (Fed.

Cir. 1995) 26

Lynch v. United States, 292 U.S. 571 (1934) 19

National Credit Union Admin. v. First Nat'l Bank &

Trust Co., 118 S. Ct. 937 (1998) 10, 18

Oy v. United States, 61 F.3d 866 (Fed. Cir. 1995)

Perkins v. Lukens Steel Co., 310 U.S. 113 (1940)

26, 27

Project Stormfury, 59 Comp. Gen. 369 (1980) 14,17

Rough Diamond Co. v. United States, 351 F.2d 636 (Ct.

Cl. 1965) 26

Scanwell Lab. v. Shaffer, 424 F.2d 859 (D.C.

Cir. 1970) 27

Vil

Secretary of the Air Force. 42 Comp. Gen. 272

(1962) 15

Sutton v. United States, 256 U.S. 575 (1921) 16, 20

Winstar v. United States, 518 U.S. 839 (1996) 19

CONSTITUTION & STATUTES

U.S. Const. art I, § 9, cl. 7 passim

28 U.S.C. § 1254(1) (1994) 2

28 U.S.C. § 1295(a)(10) 13

31 U.S.C. § 1341 passim

31 U.S.C. § 1342 14

31 U.S.C. § 1350 18

31 U.S.C. §§ 1511-1519 passim

41 U.S.C. §§ 601- 609 13

41 U.S.C. § 607(d) 13

Ch. 52, 3 Stat. 568, § 6 (1820 ) ane

Ch. 251, 16 Stat. 251 (1870) 2, 5,6

Ch. 1484, 33 Stat. 1257 (1905) 2, 6

Ch. 896, 64 Stat. 765, § 1211 (1950) » a 5

OTHER AUTHORITIES

CRS. Short-Term Continuing Resolutions: The Dep't of

Defense Experience, 89-579F (Oct. 19, 1989) 23

Davis & Pierce, Administrative Law Treatise, §§ 16.2- 16.3

(1994) 27

Fenster, Herbert & Christian Volz, The Anti-Deficiency

Act: Control Gone Astray, 11 Pub. Con. L.J. 155

vit

(1979) 17

GAO, Principles of Federal Appropriations Law, ch. 6,

(1992) 18

GAO/OGC-92-13, Appropriations Law -- Vol. I]

Stith, Kate, Congress’ Power of the Purse, 97

Yale L.J. 1343 5. 6, 14

No. 97-

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1997

THE CESSNA AIRCRAFT COMPANY,

Petitioner,

JOHN H. DALTON,

SECRETARY OF THE NAVY,

Respondent.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Federal Circuit

PETITION FOR WRIT OF CERTIORARI

Petitioner The Cessna Aircraft Company (“Cessna”) hereby

petitions for a writ of certiorari to review the judgment of the

United States Court of Appeals for the Federal Circuit. The

Federal Circuit ruled that an Executive Branch agent can obligate

and expend funds from the Treasury before completion of the

apportionment process mandated by statute and regulations and

that a private party cannot recover damages arising out of any

violation of those statutes and regulations. In so ruling, the

Federal Circuit held that Cessna lacked standing to challenge the

validity of its contract with the government, even though there is

no dispute that the Navy failed to apportion the moneys as

required by law prior to obligating them to that contract.

OPINIONS BELOW

The opinion of the Court of Appeals (App. la) is reported at

126 F.3d 1442 (Fed. Cir. 1997). The opinions of the Armed

Services Board of Contract Appeals (App. 1b, 1c) are reported at

96-1 BCA © 27,996 and 93-3 BCA § 25,912.

JURISDICTION

The Court of Appeals entered judgment on October 6, 1997.

Cescna's timely filed petition for rehearing was denied on

February 27, 1998. App. Id. This Court has jurisdiction under 28

U.S.C. § 1254(1) (1994).

CONSTITUTIONAL, STATUTORY AND REGULATORY

PROVISIONS INVOLVED

Article I, Section 9, Clause 7: "No Money shall be drawn from

the Treasury, but in Consequence of Appropriations made by

Law; and a regular Statement and Account of the Receipts and

Expenditures of all public Money shall be published from time to

time."

The appendix (App. le) sets forth verbatim the following

statutory provisions: 3 Stat. 567(1820); Section 7, 16 Stat. 230,

251 (1870); Section 4, 33 Stat. 1214, 1257 (1905); Section 1211,

64 Stat. 763, 765 - 768 (1950); 31 U.S.C. §§ 1341, 1511-1519

(1994).

The appendix (App. If) sets forth verbatim the following

regulatory provisions: DOD Directive 7200.1 (May 7, 1984);

DOD Accounting Manual (Feb, 1988); Navy Comptroller Manual.

STATEMENT OF THE CASE

This petition asks the Court to review for the first time a

question of profound significance to all persons who contract with

the federal government—whether an Executive Branch official

can disregard statutory and regulatory provisions governing the

disposition of funds appropriated pursuant to Article I, Section 9,

Clause 7 in order to require a contractor to render performance

and the more fundamental question of whether such official can

obligate and expend such unapportioned funds. This case presents

an effort by the Executive Branch to undermine a statute

(requiring the apportionment of funds before they are obligated

and spent) that is the cornerstone of a comprehensive set of

statutes imperative to the effective application of Article I,

Section 9, Clause 7 of the Constitution. "No Money may be

drawn from the Treasury, but in Consequence of Appropriations

made by Law... ." U.S. Const. art. I, §9, cl. 7. With this

statement, the Constitution grants exclusively to the Congress the

power of the purse -- a power that cannot be delegated by the

Legislature. Fidelity to our constitutional form of government

also prohibits both the Executive and Judicial Branches from

disregarding Congress’ plenary authority to control federal

expenditures. That, however, is precisely what has occurred here.

In the name of expediency, a low-level Executive Branch

bureaucrat obligated Treasury funds for a contract by disregarding

constitutionally based statutes and regulations governing how

money must be drawn from the Treasury. Then, bowing to

irrelevant program considerations, the United States Court of

Appeals for the Federal Circuit, the only Article III court likely to

address these issues again, condoned a result whereby such

bureaucrats can disregard these constitutionally based statutes and

regulations with impunity. This result is contrary to Article |,

Section 9, Clause 7 of the Constitution, the statutes enacted to

effectuate the purpose of that Clause, the regulations promulgated

to effect the purpose of those statutes, and instructive opinions of

this Court. This Court, however, has never addressed the

fundamental issue presented here: whether the Executive and

Judicial Branches may disregard the manner in which Congress

has determined to control the power of the purse.

The Court should grant the petition for three reasons. First, the

Federal Circuit panel decision in this case allows Executive

Branch officials to circumvent a statutory and regulatory scheme

designed to protect Congress’ "power of the purse." As explained

below, consideration of this issue by this Court is long overdue.

Second, the decision of the Federal Circuit (the only Court of

Appeals likely to consider the issue) conflicts with precedent of

this Court addressing analogous statutes as well as the plain

language of the statutes at issue. Review by this Court, therefore,

is essential to preserving the Congress’ "power of the purse."

Third, the decision conflicts with Supreme Court jurisprudence on

standing, which was necessarily disregarded by the Federal

Circuit in order to reach its holding.

A. The Statutory Scheme Enacted By Congress To

Implement Article I, Section 9, Clause 7

Article I, Section 9, Clause 7, and its implementing laws,

enjoin the Executive from spending money in the name of the

United States except as provided by the Congress. As discussed

below, for nearly two hundred years, the Congress has been

enacting a panoply of Acts designed to protect its prerogative to

control federal expenditures pursuant to Clause 7. These statutes

(principally the Anti-Deficiency Act) and their implementing

regulations prohibit Executive Branch officials from obligating

and expending moneys on behalf of the United States prior to

sufficient funds being appropriated and apportioned. That is, the

passage of an adequate appropriation alone does not free the

Executive to obligate and expend funds from the Treasury. Under

the applicable statutory scheme, funds remain legally unavailable

until the Executive Branch has completed a mandatory series of

actions apportioning an appropriation to ensure that funds will

remain available throughout the fiscal year.

1. The History Of The Anti-Deficiency

Act

The cornerstone of the statutory scheme enacted to preserve

the power of the purse is the Anti-Deficiency Act, 31 U.S.C.

§ 1341. The genesis of this legislation was an 1820 Act entitled,

"An Act in addition to the several acts for the establishment and

regulation of the Treasury, War and Navy Departments." Ch. 52,

3 Stat. 567 (1820) ("the 1820 Act"). App. le. See Kate Stith,

Congress’ Power of the Purse, 97 YALE L.J. 1343, 1370- 1372.

It's purpose was to prevent the Executive Branch from incurring

"coercive" deficiencies that effectively circumvented Congress’

power of the purse. /d. at 1370. Under the terms of section 6 of

the 1820 Act, "no contract shall hereafter be made . . . except

under a law authorizing same, or under an appropriation adequate

to its fulfillment; ..." App. le. With this Act began a long

history of many attempts by the Congress to enjoin the Executive

from disregarding Article I, Section 9, Clause 7. As set forth

below. continued resistance or disregard by the Executive of this

fundamental constitutional tenet continues to this day and in this

case.

The scope of the 1820 Act was clarified and expanded by the

act of July 12, 1870, ch. 251, § 7, 16 Stat. 251 (1870) ("the 1870

Act"). App. le. Under the 1870 Act, no government could

commit to the expenditure in any fiscal year of any amount in

excess of appropriations for that year or involve the government

"in any contract for the future payment of moneys in excess of

such appropriations." Section 7, 16 Stat. 251 (1870). App. le.

Under the terms of the 1870 Act, any contract to pay a sur "in

excess of that limited by Congress" was a nullity. Hooe v. United

States, 218 U.S. 322, 334 (1910). This statute was enacted

specifically to address "the problem" that Executive Branch

officials obligated moneys in advance of appropriations and then

sought deficiency appropriations from Congress, which had little

choice but to provide them. App. 18a. By prohibiting the

Executive Branch from incurring these deficiencies, Congress

sought to ensure that its power of the purse would not be

undermined. See Stith, 97 YALE L.J. at 1371-72.

Zz. Congress Requires The Executive To

Apportion Appropriated Moneys

To further restrain the Executive's over-commitment of

funding, the scope of the 1870 Act was expanded by the General

Deficiency Bill of 1905, ch. 1484, § 4, 33 Stat. 1257 (1905) ("the

1905 Act"). App. 2e-3e. The 1905 Act contained two equally

significant new provisions. First, "[a]ll appropriations made for

contingent expenses or other general purposes" had to be

apportioned to ensure availability of funds for the entire fiscal

year. 33 Stat. 1257-58. /d. By requiring that all appropriations

be apportioned, the statute was intended to prevent the Executive

from spending all available funds prior to the end of the fiscal

year and requiring that Congress appropriate additional money in

order to meet the government's needs for the remainder of the

year and to avoid coercive deficiencies. Second, the 1905 Act

established sanctions, including criminal penalties, for those who

ignored its dictates. 33 Stat. 1258. App. 3e. These sanctions

remain in effect today. 31 U.S.C §§ 1518-19 (1994). App. 19e.

Incorporated as part of the General Provisions of the General

Appropriations Act of 1951, ch. 896, § 1211, 64 Stat. 763, 765-68

(1950) ("the 1950 Act"), the 1950 Act revised and subdivided the

Anti-Deficiency Act and related laws in a manner largely

consistent with their current structure. Compare Section 1211, 64 -

Stat. 765-66 with 31 U.S.C. §§ 1341, 1512-19 (1994). App. 3e-

9e; 10e-19e. Most importantly for present purposes, new

subsections further defined the apportionment process, including

the manner in which that apportionment process must occur. See

31 U.S.C. §§ 1512-14. App. 12e-l6e. See generally, GAO/OGC-

92-13 Appropriations Law -- Vol. Il, at 6-72 - 6-99 ("the GAO

Accounting Manual").

31 U.S.C. § 1512 requires apportionment of all funds available

for obligation for a limited period of time in order to avoid the

need for supplemental appropriations:

Except as provided in this subchapter, an appropriation

available for obligation for a definite period shall be

apportioned to prevent obligation or expenditure at a rate that

would indicate a necessity for a deficiency or supplemental

appropriation for the period.

31 U.S.C. § 1512(a). App 12e.!/ After funds have been

apportioned by the Office of Management and Budget, the

statutory process continues. Funds must be "allocated" by the

executive agency, and then "suballocated" within the agency. 31

U.S.C. §§ 1512-1514. App. 12e-16e. Only when this process has

occurred can an officer of the Government /egally obligate funds

from the Treasury:

An officer or employee of the United States Government or

of the District of Columbia government may not make or

authorize an expenditure or obligation exceeding (1) an

31 U.S.C. § 1517(a). App. 18e-19e. Thus, under the statutory

scheme enacted by Congress to protect its power of the purse,

Executive officials are prohibited from entering into contracts and

from authorizing or creating obligations or expenditures in excess

of amounts apportioned and administratively subdivided below

the apportionment level.

To further ensure compliance with the statutory scheme, 31

U.S.C. § 1514(a) requires Executive agencies to implement

regulations to effectuate the mandated apportionment process,

which have the force and effect of law. App. I5e. For the

l/ 31 U.S.C. § 1513(b) designates the President as the apportioning

official. The President delegated this responsibility the Director of the

Bureau of the Budget (now the Director of the Office of Management

and Budget) pursuant to Exec. Order No. 6166, § 16 (June 10, 1933).

Department of Defense ("DOD"), these regulations are contained

in DOD Directive 7200.1, dated May 7, 1984 and the DOD

Accounting Manual. DOD Directive 7200.1 restricts authority to

obligate funds to the amount that has been apportioned and

forbids obligations in excess of the amount apportioned. App.

13f-14f. That prohibition is further reinforced by the DOD

Accounting Manual, which states the following:

For apportioned funds, a violation of DOD Directive

7200.1 is a violation of 31 U.S.C. § 1517. (reference (v)).

Since DOD Directive 7200.1 was issued pursuant to 31 U.S.C.

§ 1517, it has the force an effect of law.

DOD Accounting Manual at 21-5. App. 18f.

The Navy, too, has implemented a similar regulatory scheme,

which is set forth in the Navy Comptroller Manual ("NCM"). The

NCM imposes a sequential funding process whereby funds first

are apportioned, then allocated to the Secretary of Defense, and

then allotted, suballotted, and committed through the chain of

command in the Navy. NCM 073002. App. 22f. Once this

process is completed, a Navy contracting officer then may /egally

obligate funds to a Navy contract.

3. The Federal Circuit Decision

The requirement for apportionment of any appropriated funds

prior to their being obligated and expended on a government

contract is a fundamental principle of federal funding law. The

decision of the United States Court of Appeals for the Federal

Circuit is in conflict with that principle. Under the Federal

Circuit's existing decision, a subordinate agency official can

obligate moneys prior to their being apportioned without violating

31 U.S.C. § 1517 even though the President would be precluded

from ensuring that those moneys are spent so as "to achieve the

most effective and economical use,” as required by 31 U.S.C.

§ 1512. App. 12e-13e.

Moreover, under the Federal Circuit's decision, violation of the

apportionment statutes has no effect on the legality of the contract

arising out of that very violation. See App. 26a-27a. That notion

is contrary to precedent established by this Court over a century

ago. See Clark v. United States, 95 U.S. 539 (1877).

Notwithstanding that precedent, the Court of Appeals decision

would permit agents for a procuring activity within a subordinate

executive department to disregard statutes and regulations with

impunity whenever expediency and parochial self-interest

warranted doing so, and the contractor, not the government, must

bear the financial consequences of the agency's conduct.

The very contractor that must bear the burden of the

government agent's disregard for the law would have no standing

to complain about that violation if the decision of the appeals

court remains the law. App. 26a-27a. The rationale for the court's

opinion on this score is essentially that laws governing the

expenditure of money for government contracts are of no

consequence to the contractor that is to receive those funds. /d.

Since the laws were not intended for the benefit of the contractor

they have no standing. Bul see National Credit Union

Administration v. First Nat'l Bank & Trust Co., 118 S. Ct. 927,

935 (1998). But this Court has recently ruled that such a contract

may be abrogated by the government, and therefore the interest of

a contractor is compelling. See Hercules, Inc. v. United States,

116 S. Ct. 981 (1996).

B. Background Of The Case

Cessna and the Navy entered into a contract that had a number

of pertinent characteristics for present purposes. First, the

contract was funded with annual appropriations -- the Navy was

required to obligate funds each year to the contract, after Congress

had appropriated those funds. App. 4c. Asa result, the Navy was

required to comply with the statutes and regulations governing the

obligation of those funds. These include the foregoing

apportionment statutes, the subdivision statutes, and the

regulatory provisions that were promulgated as required by 31

U.S.C. § 1514, which have the force and effect of law. One such

regulatory provision was the DOD Accounting Manual, which

states in part that "apportionments and reapportionments by OMB

are required before funds may be obligated." App. 23a. There is

no dispute that the Navy obligated funds before they were

apportioned.

On May 10, 1983, the Navy awarded Cessna a contract that

was administered by the Naval Air Systems Command

("NAVAIR"). App. 2c. The Navy funded the contract with

operations and maintenance ("O&M") moneys. App. 3c. These

are one-year funds that can be expended only for services

performed in the fiscal year for which the funds are appropriated.

App. 3c. The contract had a basic performance period of five

program years, fiscal years ("FYs") 1984-1988. See App. Sc. It

also had a provision for one three-year option for FYs 1989-1991.

App. 4c.

As of September 30, 1988, Congress had not passed and the

President had not signed the DOD appropriations bill for FY

1989, which would fund DOD activities for the fiscal year

beginning on October 1, 1988. App. 12c. At the conclusion of a

September 30 meeting between representatives of Cessna and

NAVAIR, the NAVAIR contracting officer obtained from the

NAVAIR Comptroller a funding sheet that would be necessary to

obligate the funds necessary to exercise the first option. App.

12c. The Financial Accounting Data ("FAD") sheet that was post-

dated to October | and contained the following proviso:

"EXECUTION OF THIS DOCUMENT IS CONTINGENT ON

CONGRESSIONAL PASSAGE OF THE FY-89 DOD

APPROPRIATION ACT OR OTHER AUTHORITY." App. 5b-

6b.

On the morning of Saturday, October 1, 1988, after the end of

the 1988 fiscal year, the contracting officer's supervisor told the

contracting officer that he did not know whether the

appropriations bill had been signed into law. App. 6b. Later, a

NAVAIR supervisor called the Navy's Chief of Information office

at the Pentagon to determine whether the President had signed the

bill. No one answered the telephone. The supervisor then called a

local radio station, where someone told him the defense

appropriations bill was one of several bills that the President had

signed into law. App. I4c. The supervisor then left a message on

the contracting officer's answering machine, stating that the

President had signed the bill. Jd.

When the contracting officer received the message, she went to

her office. Alone in her office, she took the FAD sheet given to

her by the Comptroller's office, and proceeded to alter it by

whiting out the proviso. App. 6b. She then redrew the vertical

lines on the form over the white out to hide her alteration of the

document from Cessna. App. 6b. She had neither sought nor

received any authority to alter the document. Nor was she aware

of whether or not funds were actually available with which to

exercise the option.2/ See App. 6b; 14c. She signed the option

exercise modification and addressed the document to Cessna.

App. 6b; 14c.

Through her actions, the contracting officer purported to

obligate more than $22 million to fund the first option year. App.

6b. At the time she took this action, FY 1989 funds had not been

apportioned, allocated, suballocated, or committed, as required by

law and regulation. App. 24b.

By letter dated October 7, 1988, Cessna formally notified the

contracting officer the option exercise was ineffective. App. 17c.

Cessna stated that it would continue to perform contract-type

services and would submit a proposal to the Navy that would

address payment for continued services. App. 17c. The

contracting officer responded to Cessna's October 7, 1988 letter

2; Only the NAVAIR Comptroller could “commit” the funds, a step

necessary before her obligation of them, and he had not done so. NCM

€ 073001. App 20-21f.

by letter dated December 7, 1988. App. 19c. In this letter, she

took the position that the option was properly exercised, thereby

directing Cessna to continue performance. App. 19c. Cessna

continued to perform services until September 30, 1991, when the

option period ended. The Navy continued to demand and accept

services during the three year purported option period.

C. This Litigation

On April 8, 1991, Cessna submitted a certified claim to the

contracting officer pursuant to the Contract Disputes Act, 41

U.S.C. §§ 601-609 (1994). App. 10a. The contracting officer

denied the claim, and Cessna appealed the decision to the Armed

Services Board of Contract Appeals ("ASBCA") pursuant to 4]

U.S.C. § 607(d). App. lla. The adverse decision of the ASBCA

was then appealed to the United States Court of Appeals for the

Federal Circuit under 28 U.S.C. § 1295(a)(10). App. 12a. On

October 6, 1997, the Federal Circuit issued an opinion adverse to

Cessna. App. la. Cessna timely filed a petition for rehearing.

That petition was denied on February 27, 1998. App. Id.

REASONS FOR GRANTING THE WRIT

A. The Actions Of The Navair Contracting Officer

Frustrated The Purpose Of Laws Intended To Protect

The Treasury.

This case raises legal issues concerning the Anti-Deficiency

Act and its subordinate statutes. The Comptroller General has

explained the genesis of the Act as follows:

The Anti-deficiency Act was born as 4a result of

Congressional frustration at the constant parade of deficiency

requests for appropriations it was receiving in the 19th century

and early 20th century, generated, it believed, by the lack of

foresight and careful husbanding of funds by Executive branch

agencies. (See Annals of Congress 10th Cong., 2d Sess.

1809.) A consistent theme runs through myriad pages of floor

debates and reports on supplemental appropriation bills: The

Congress was tired of receiving appropriation requests which it

could not, in good conscience, refuse because the agency had

legally or morally committed the United States to make good

on a promise. We term such commitments "coercive

deficiencies" because the Congress has little choice but to

appropriate the necessary funds.

Project Stormfury, 59 Comp. Gen. 369, 372 (1980).

In response to repeated unfunded obligations made by the

Executive Branch, Congress has over the course of nearly two

hundred years enacted a series of laws (currently codified as the

Anti-Deficiency Act and related statutes) governing the manner in

which the Executive may spend money. See 31 U.S.C. §§ I511-

1519, 1341-1342; see generally Stith, 97 YALE L.J. at 1370-1372.

Congress’ exclusive and plenary power to authorize the

expenditure of United States funds is granted by the Constitution.

U.S. Const. art 1, § 9, cl. 7. Thus, the Act and its subordinate

statutes serve as a statutory mechanism to enforce Congress’

constitutional right to control the power of the purse. They enjoin

the Executive from spending money in the name of the United

States except as provided by the Congress. See Harrington vy.

Bush, 553 F.2d 190, 194-95 (D.C. Cir. 1977); Secretary of the Air

Force 42 Comp. Gen. 272, 275 (1962).

Each step in the appropriation and apportionment process is a

condition precedent that must be satisfied by the Executive

Branch prior to its entering into contracts or obligating any money

from the Treasury. Strict adherence to these rules is therefore

necessary to preserve Congress’ power of the purse -- the ability

to place conditions on the manner in which money is to be used.

If the laws are not strictly enforced, Congress’ ability to control

the appropriations process becomes illusory.

By adopting the Anti-Deficiency Act and the supporting

statutory scheme, Congress made clear that the Executive Branch

may not /egally obligate funds until authorized government

officials complete an ordered, mandatory series of actions. For

the sake of expediency, a low-level bureaucrat disregarded these

constitutionally based statutes and regulations. For similarly

irrelevant practical considerations, the Federal Circuit, the court

before which these issues almost exclusively arise, declined

strictly to enforce the very statutes disregarded with impunity.

The Federal Circuit's reasoning is certainly contrary to

instructive opinions of this Court, such as Hercules, 116 S. Ct. at

987, wherein this Court held that the Anti-Deficiency Act must be

strictly construed. However, this Court has never squarely

addressed the aspect of the power of the purse presented in this

case: whether and Executive Branch official can disregard the

apportionment process mandated by Congress to effect Article I,

Section 9, Clause 7. Prior Supreme Court cases have dealt with

the Executive's cavalier attitude towards the Anti-Deficiency Act's

appropriation condition precedent. See, e.g, Hooe v. United

States, 218 U.S. 322 (1910) (executive officer is without authority

to bind government to pay amounts in excess of appropriations);

Sutton v. United States, 256 U.S. 575 (1921) (Secretary of War

obligation authority limited to amount specifically appropriated).

The case of Clinton v. City of New York, 118 S. Ct. 1551

(1998), which is currently pending before the Court, raises an

issue similar to (and certainly as important as) the one presented

here: the constitutionality of the Line Item Veto Act, in which

Congress has delegated to the Executive certain authority over

appropriated moneys. While both cases address delegation of

control over the purse strings, the Clinton case will leave

unresolved by this Court the issue of whether an Executive

Branch official can disregard the limits placed on that Branch by

the Congress before obligating and expending money. Moreover,

since the issue presented here almost always arises in the

procurement context, only the Federal Circuit is likely to espouse

an appellate view on the subject. For the reasons set forth herein,

that view is constitutionally flawed, but it will likely go

unchallenged except upon review by this Court.

The pending issue lies at the heart of Congress’ constitutionally

granted control of appropriations. Although based on a complex

set of statutes, the mandatory process that was violated by the

Executive official is clearly defined by those statutes. First,

Congress must appropriate the funds. 31 U.S.C. § 1341(a)(1)(B).

Second, the President, through the Office of Management and

Budget, must apportion the funds, i.e., distribute budgeted

amounts to the Executive Branch agencies. 31 U.S.C. § 1512.

Third, the executive agency must allocate, allot, and suballot the

apportioned funds down to the subagency level. 31 U.S.C. §§

1512-14. Fourth, the agency must commit the funds to a contract.

Id. Then, and only then, may a contracting officer legally obligate

funds to a contract. 31 U.S.C. § 1517. None of these steps,

starting with apportionment was followed and the Federal

Circuit's decision effectively gave every contracting officer carte

blanche to usurp each regulatory step.

To emphasize the importance of these rules, Congress directed

the Executive Branch to promulgate implementing regulations

that also require compliance with this mandatory sequential

process. 31 U.S.C. § 1514(a). Regulations issued pursuant to

section 1514(a) have the force and effect of law, and compliance

with those regulations is mandatory because section 1517

prohibits the violation of such regulations. Thus, violation of the

Act, its subordinate statutory provisions, and the implementing

regulations each constitute a violation of the apportionment

statutes. See Housing and Home Finance, 37 Comp. Gen. 220

(1957),3/

As still one more means of ensuring that the Executive Branch

will follow these requirements and avoid "coercive

deficiencies,"*/ Congress also prohibited the Executive Branch

from accepting voluntary services. 31 U.S.C. § 1342. The

prohibition on voluntary services precludes agencies from

accomplishing the same result indirectly "by accepting ostensibly

‘voluntary’ services, and then presenting Congress with the bill."

GAO, Principles of Federal Appropriations Law, ch. 6, at 56

(1992).

Finally, in recognition of the importance of the principles

underlying the Anti-Deficiency Act, Congress imposed a criminal

3/ DOD's implementing regulations are contained in the DOD

Accounting Manual and DOD Directive 7200.1, dated May 7, 1984. The

Navy's further implementing regulations include those set out in the

Navy Comptroller Manual ("NCM"), Navy Comptroller Instructions, and

NAVAIR Instructions.

4/ The Comptroller General defines "coercive deficiencies" as

“appropriation requests which [the Congress] could not, in good

conscience, refuse because the agency had legally or morally committed

the United States to make good on a promise." 59 Comp. Gen. at 372;

see Herbert L. Fenster and Christian Volz, The Anti-Deficiency Act:

Control Gone Astray, 11 PUB. CON. L.J. 155 (1979 ).

penalty on government employees who violate the act. 31 U.S.C.

§ 1350.

The Federal Circuit let stand the underlying factual finding

that the Navy did obligate funds before they were apportioned.

The court then refused to grant Cessna any relief on the grounds

that the provisions disregarded were intended to benefit only the

Government, necessarily understood to mean the Executive. In

reaching that result, the Federal Circuit's decision conflicts with

existing precedent of this Court, and rests on grounds rejected in

case law of this Court. See National Credit Union Admin. v. First

National Bank & Trust Co., 118 S. Ct. 927 (1998). In effect, the

Federal Circuit has resurrected a law of standing that has been

dead for twenty years. Because the Federal Circuit's opinion

condones the Navy's behavior, Executive bureaucrats may violate

statutes and regulations with impunity. The Federal Circuit then

left to the contractor, not the government, the consequences of the

government's illegal conduct.

Under the Federal Circuit's reasoning, the contractor would

have to continue performing even though the government could

(or must) abrogate the contract. See Hercules, Inc. v. United

States. 116 S. Ct. 981 (1996). Under applicable case law, if only

the government can avoid the contract, then the contract should be

unenforceable due to lack of mutuality of obligations. See, e.g.,

Lynch v. United States, 292 U.S. 571, 579 (1934) ("When the

United States enters into contract relations, its rights and duties

therein are governed generally by the law applicable to contracts

between individuals."); see also, Winstar v. United States, 518

U.S. 839 (1996). However, under the Federal Circuit's holding,

the contractor lacks standing to determine the legality of its own

contract.

In rejecting Cessna’s arguments that the NAVAIR official

violated the governing statutes by obligating moneys before they

were apportioned, the Court of Appeals distinguished 31 U.S.C.

§ 1341(a), which prohibits the government from incurring

obligations in advance of appropriations, from 31 U.S.C §§ 1511-

1519, the apportionment provisions of the Anti-Deficiency Act.

The court did so on the grounds that unlike section 1341(a),

sections 1511-1519, contain no timing limitations, and because

section 1517 "says nothing about incurring obligations prior to

carrying out the apportionment process." App. 25a. To the

contrary, the sections are not distinguishable. In fact, the

operative language "distinguished" by the court is virtually

identical.

Section 1341(a)(1) provides as follows:

An officer or employee of the United States Government or

of the District of Columbia government may not (A) make or

authorize an expenditure or obligation exceeding an amount

available in an appropriation or fund for-the expenditure or

obligation.

Section 1517(a) provides as follows:

An officer or employee of the United States Government or

of the District of Columbia government may not make or

authorize an expenditure or obligation exceeding (1) an

apportionment.

The only difference between section 1341(a), in which the

appeals court recognizes the order of precedence, and section

1517(a)(1), in which the court finds none, are the words that

follow "exceeding." Section 1341 deals with obligating amounts

exceeding an appropriation, and section 1517 addresses the

obligation of amounts exceeding an apportionment. Aside from

that difference, i.e., the pertinent step in the funding process, the

two provisions are identical. Both prohibit the obligation of

moneys in advance of the specified event in the funding process.

The Federal Circuit also relied on the notion that obligating

and expending funds before they are apportioned means that they

were not obligated in excess of an apportionment. Logic dictates

a a i ca a a a a ae

1 ab alle

that if the Executive official can avoid the prohibition against

obligating funds in excess of an apportionment by simply

obligating them before they are apportioned, the apportionment

provision becomes meaningless. The actions of the low-level

bureaucrat have deprived the President, the Secretary of Defense,

the Secretary of the Navy, and the Commander of NAVAIR of

their rights and obligations to determine the appropriate use of the

funds involved.

Rather than strictly construe the apportionment statute, the

Federal Circuit defined "in excess of" to mean not just more than

but also after. If that were the case, then an Executive Branch

official could also obligate and expend moneys before they are

even appropriated since doing so would not be "in excess” of an

appropriation. That interpretation would squarely contradict this

Court's holding in Sutton v. United States, 256 U.S. 575, wherein

the Court held that the Secretary's authority was limited to the

amount appropriated.

Recently, the Supreme Court has made very clear that the

Anti-Deficiency Act is to be construed strictly. According to the

Court, the meaning of the Act is plain: it prohibits the government

"from entering into a contract for future payment of money in

advance of, or in excess of, an existing appropriation.” Hercules,

116 S. Ct. at 987. Given this Court's interpretation of section

1341(a) and that provision's language in common with section

1517. there is but one correct interpretation of section 1517: it

prohibits the government "from entering into a contract for the

future payment of money in advance of or in excess of, an

existing [apportionment.]" See id. at 987 (emphasis added). The

Court of Appeals ruling to the contrary cannot be reconciled with

either the plain wording of the statute or the Hercules decision.

Similarly, 31 U.S.C. § 1512 expressly requires that

appropriated funds be apportioned. This necessarily means that

no use of funds -- even though appropriated -- may be made

before apportionment -- an understanding of the law that is shared

by the government. In implementing these statutory

requirements, the DOD Accounting Manual specifically states

that tunds must be apportioned before they may be obligated:

An apportionment or reapportionment is a_ distribution

made by OMB [Office of Management and Budget] of

amounts available for obligation in an appropriation or fund

account. Except in certain instances . . . apportionments and

reapportionments by OMB are required before funds may be

obligated.

App. 23a (emphasis added).>/ The reason for this requirement is

clear: OMB (as the delegee of the President) may decide to delay

or otherwise alter an expected apportionment. And, if obligations

are made before the apportionment, those obligations may, in fact,

have no support in apportioned funds. By allowing the NAVAIR

contracting officer to obligate funds before the President has

apportioned them, the Court of Appeals would permit a

subordinate agent to usurp the President's obligation to impound

those funds and similarly would usurp the authority of those

officials having allocation and commitment responsibilities.

Clearly, this was not what the Congress intended when it

designated the President, who in turn designated the Director of

OMB, as the sole authority to apportion moneys. The same holds

true for regulatory process implemented by the Department of

Defense. After funds are allocated to the Secretary of Defense,

regulations required then to be allotted, suballotted and committed

down through the chain of command to the Contracting Officer.

NCM 4 073002(2). App. 24f.

Consistent with that reasoning, the Navy's own regulations do

require apportionment before obligation. The NCM imposes a

DOD Directive 7200.1 similarly states that obligation authority is

restricted to the amount that has been apportioned, and emphasizes that

obligations are not authorized in excess of the amount apportioned. App.

7f, 13f-14f

oe Oa ie

sequential funding process whereby funds first are apportioned,

then allocated to the Secretary of Defense, and then allotted,

suballotted, and committed through the chain of command in the

Navy. NCM 4 073002(2). App. 24f. Under this regime, a

contracting officer may not obligate funds until a// of the proper

preceding steps in the sequential funding approval chain have

been completed. The NCM expressly states the apportionment

process "is the initial step in the budget execution phase." NCM 4

073100. App. 28f.

The Congressional Research Service has confirmed this

requirement that funds must be apportioned before they are

obligated:

When full-year defense appropriations have been enacted,

military agencies, installations, and activities do nol

immediately have the authority to obligate the Federal

Government to spend money. The Anti-Deficiency Act (31

U.S.C. 1511 et seg.) requires that funds . . . be apportioned or

distributed to the military departments. (Emphasis added. )

CRS. Short-Term Continuing Resolutions. The Department O}

Defense Experience, at 8, 89-579F (Oct. 19, 1989).

Nonetheless, the Court of Appeals ruled that funds could be

obligated before they are apportioned, notwithstanding the laws as

written. When the Board of Contract Appeals declined to enforce

the funding laws and regulations, it candidly admitted to a fear

that holding the Navy responsible for a violation of the statutory

and regulatory requirements would "wreak havoc" on the federal

procurement process. App. 33b. Because of this erroneous and

irrelevant perceived practical effect, the Board concluded that "it

is unreasonable to read the apportionment statutes to require the

Government to halt all contractual actions when OMB takes its

statutorily allotted time to discharge its apportionment duties."

Id. In short, the Board allowed perceived practical concerns to

subvert Congress’ requirement that the Executive Branch comply

with the law before obligating funds. While the court did not

admit to such a fear, the reasoning provided evidences that it

placed perceived practical considerations above the dictates of the

law.

Neither the Board nor the court may bend or ignore the law

because of potential implications of the outcome. See

Commissioner v. Asphalt Prods. Co., 482 U.S. 117, 121 (1987).

This Court made this point very clearly in its recent Hercules

decision by giving the Act its literal meaning. This Court ruled

that "the Act bars agreements for which there has been no

appropriation," unless a statute expressly permitted an exception

to the Anti-Deficiency Act. 116 S. Ct. at 988 n.10. Rather than

applying the Act so as to give effect to Congress’ intent, and to

enforce Congress’ constitutional power of the purse, the Court of

Appeals ignored the Act and gave effect to the Navy's fears about

the practical consequences of requiring the Navy to follow the

law.

It is apparent that concern over the practical consequences of

the decision affected the way the court chose to read the law. The

court concluded funds may be obligated in advance of an

approved apportionment even while it agreed that funds could not

be obligated in excess of an approved apportionment. App. 24a-

25a. This conclusion is inherently inconsistent. In the absence of

an apportionment, the amount of apportioned funds is zero. At

that point, any obligation would exceed the apportioned amount,

and so would be illegal.

B. This Court's Precedent Hold That Contracts Executed

In Violation Of The Law Cannot Be Enforced.

As was explained above, once funds have been apportioned,

they must be allocated and committed before they can be

obligated. Accordingly, the option exercise was ineffective

because the contracting officer acted without authority when she

purported to obligate funds in order to exercise the option: she

usurped the authority of OMB to apportion funds, the authority of

the Comptroller of the Navy to allocate funds, and the authority of

the NAVAIR Comptroller to commit funds.

NE Le Te TI ae nS oe

}

bo Wieden Tie aie Se ia

For over a hundred years the law has been that a contract in

violation of the law is a nullity. In Clark v. United States, 95 U.S.

$39 (1877), the owner of a vessel had entered into an oral contract

under which the government would put the vessel to use to

determine whether it would satisfy its needs, would pay a

specified daily rate for use of the vessel and would be responsible

for the vessel while in its possession. While in the government's

possession, the vessel was destroyed. The owner sought recovery

in the Court of Claims. This Court held that the oral contract

violated the statutory requirement that all contracts be in writing,

and that the oral contract was therefore not enforceable.

In this case, the contract was executed by the government in

violation of federal funding laws. As such there can be no

enforceable contract. Stated another way, the contracting officer

had no authority to exercise the option because doing so was in

violation of the apportionment statutes. It is a basic rule that any

action taken by a government employee in absence of authority is

a nullity. ~See Federal Crop Ins. Corp. v. Merrill, 332 U.S. 380

(1947). Accordingly, no valid contract was brought into existence

when the contracting officer required Cessna to perform work

based on the obligation of funds that had not been apportioned.

C. The Court Of Appeals Ruling On Standing Conflicts

With The Law Of This Court And Other Circuit

Courts Of Appeal.

The Court of Appeals dismissed Cessna’s arguments that

NAVAIR's actions were in violation of the Anti-Deficiency Act

and Navy regulations implementing that Act. The court found no

violation of the Act, which for the reasons explained above was

erroneous, and ruled that any violations of the regulations

implementing the Act were of no consequence because Cessna

was not entitled to rely upon the Navy's compliance with these

laws. Presumably, the court's reasoning would apply to violations

of the Anti-Deficiency Act as well. In either case, to deny Cessna

any relief, the Court of Appeals resurrected a rule of standing that

was repudiated nearly thirty years ago.

The court's decision in this respect relies upon stale case law:

Rough Diamond Co. v. United States, 351 F.2d 636 (Ct. Cl. 1965).

See App. 26a. The court's 1965 decision in Rough Diamond

expressly relied upon the Supreme Court's even earlier 1940

decision in Perkins v. Lukens Steel Co., 310 U.S. 113 (1940), as

do ultimately all the other cases cited to by ihe Court of

Appeals.® By relying upon the Perkins line of cases, the Court of

Appeals turned back the clock on the law of standing.

In Perkins, the Court ruled that a disappointed bidder had no

legal right to complain about the government's violation of the

Walsh-Healy Act, because the Act was for the "sole benefit" of

the government, and any violation of the Act therefore conferred

no legal rights on the contractor. 310 U.S. at 129. Two decisions

issued in 1970 make it clear that Perkins no longer reflects the

state of the law.

First, the D.C. Circuit decided Scanwell Laboratories v.

Shaffer, 424 F.2d 859 (D.C. Cir. 1970), where the court held that a

disappointed bidder has standing to challenge the legality of a

contract award, regardless of the nature of the statute or regulation

the government allegedly violated in conducting the procurement.

Second, the Supreme Court soon thereafter explicitly restated the

law on standing in Association of Data Processing Service

Organization v. Camp, 397 U.S. 150 (1970). In reversing the

appeals court's reliance upon Perkins, the Court adopted the

current standing test, and implicitly reyected the old test adopted

in Perkins, by stating "the existence or non-existence of a ‘legal

6/ Hartford Accident & Indemnity Co. v. United States, 127 F. Supp.

565, 567 (Ct. Cl. 1955) (citing Perkins); Applied Devices Corp. v. United

States, 591 F.2d 635, 640 (Ct. Cl. 1979) (citing Rough Diamond), Chris

Berg, Inc. v. United States, 426 F.2d 314, 317 (Ct. Cl. 1970) (citing

Hartford), and LaBarge Products, Inc. v. West, 46 F.3d 1547, 1552 (Fed.

Cir. 1995) (citing Rough Diamond and Chris Berg).

interest’ is a matter quite distinct from the problem of standing.”

Id. at 153 n.1.

After Camp, many courts have recognized that the legal right

test established by Perkins no longer applies, and by extension,

the cases resting on Perkins no longer are good law. See, @.g.,

B.K. Instrument, Inc. v. United States, 715 F.2d 713, 719 (2d Cir.

1983) ("[t]he Court in Data Processing repudiated the [ Perkins]

‘legal right’ doctrine as a test of standing. . . ."); Hayes Int'l Corp.

vy. MeLucas, 509 F.2d 247, 254-55 (Sth Cir. 1975) ("While

Perkins has not been expressly overruled by the Supreme Court,

the ‘legal interest’ test for standing has largely been abandoned.").

See generally Davis and Pierce, Administrative Law Treatise

§§ 16.2-16.3 (1994). Recently, this court expressly held that

standing was not dependent upon whether a statue was intended to

benefit the plaintiff. National Credit Union Admin., 118 S. Ct. at

1938.

By resurrecting the Perkins line of cases, the Federal Circuit

brought back from the dead a standing rule which the decisions of

other circuit courts of appeal and the Supreme Court indicate had

been long gone. Confusing the matter further is the length to

which the court went in ruling Cessna had standing to pursue its

claim based upon the Anti-Deficiency Act. App. }3a-17a. But

later. the court relies upon out of date standing cases to pull the

rug from out under this ostensible holding on standing, by stating

contractors do not have any legal interests protected by the Anti-

Deficiency Act. Which Is to say, contractors do not have standing

to challenge Anti-Deficiency Act violations.

Tne Court of Appeals relies upon American Farm Lines Vv.

Black Ball Freight Service, 397 U.S. 532 (1970) for the notion

that an agency "always" can relax its rules when those rules are

not intended to benefit the public. App. 27a.’/ But through

inadvertence or otherwise, the Court of Appeals does not state the

complete rule established by this Court. In particular, the

appellate court does not address the exception relevant here,

namely, that an agency may not violate its rules when this would

cause "substantial prejudice to the complaining party." American

Farm Lines, 397 U.S. at 539 (quoting NLRB v. Monsanto Chem.

Co., 205 F.2d 763, 764 (8th Cir. 1953). See also Oy v. United

States, 61 F.3d 866, 875 (Fed. Cir. 1995). Cessna obviously was

prejudiced in a very substantial way by the Navy's violations of

the provisions at issue -- it was forced to continue contract

performance at a substantial loss.

7/ American Farm Lines involved rules obviously of a procedural

nature, and were developed by the agency without any requirement to do

so. Here, the Navy was dealing with substantive rules made applicable

Statute. f

CONCLUSION

For the reasons set forth above, this Court should grant the

petition for a writ of certiorari.

Respectfully submitted,

HERBERT L. FENSTER*

JEREMY M. GRIFFIN

MCKENNA & CUNEO, L.L.P.

1900 K Street, N.W.

Washington, D.C. 20006

(202) 496-7500

Counsel for Petitioner

*Counsel of Record

May 28, 1998

APPENDIX

EAE IO PITRE

ETRE EOS IIR LILIE ELE LOINC ISS SRI he

eae a ei sin Tale at EEE REEL E Sees ah aa

The CESSNA AIRCRAFT COMPANY, Appellant,

John H. DALTON, Secretary of Navy, Appellee.

No. 96-1185.

United States Court of Appeals,

Federal Circuit.

Oct. 6, 1997.

Rehearing Denied; Suggestion for Rehearing In Banc

Declined Feb. 27, 1998.

Contractor appealed from decision of the Armed Services

Board of Contract Appeals, 1993 WL 89795, 1995 WL

575173, denying contractors’ claims that Navy failed to

exercise, in proper and timely manner, options under

contract. The Court of Appeals, Schall, Circuit Judge, held

that: (1) contractor's claim for additional compensation for

work performed during three-year option period arose under

Contract Disputes Act (CDA) and was within Board's

jurisdiction; (2) Antideficiency Act did not prohibit funds

from being obligated before they were both appropriated by

Congress and apportioned by Executive Branch; (3)

provision of Navy contract requiring Navy to exercise option

to renew "not later than 1 October, 1988" permitted Navy to

exercise option on that date; and (4) although Navy deviated

from Cancellation of Items clause in drafting contract

schedule that gave Navy until day after contract expired to

exercise option to renew, without first obtaining proper

authority to do so, contractor could not rely on deviation in

arguing that Navy's exercise of options for two fiscal years

were ineffective.

Affirmed.

[1] UNITED STATES k73(15)

393k73(15)

Conclusions of law of Armed Services Board of Contract

Appeals are reviewed de novo; such legal conclusions

include grants of summary judgment. Contract Disputes Act

of 1978, § 10(b), 41 U.S.C.A. § 609(b).

[2] UNITED STATES k73(15)

393k73(15) ;

Decision of the Armed Services Board of Contract

Appeals on finding of fact may not be set aside unless

opponent can meet its burden establishing that finding is

arbitrary, capricious, so erroneous as to necessarily imply bad

faith, or not supported by substantial evidence. Contract

Disputes Act of 1978, § 10(b), 41 U.S.C.A. § 609(b).

[3] UNITED STATES k73(9)

393k73(9)

Contractor's claim for additional compensation for work

performed during three- year option period arose under

Contract Disputes Act (CDA) and was within jurisdiction of

Armed Services Board of Contract Appeals, although

contractor argued that Navy violated Antideficiency Act and

attendant regulations and sought compensation from Navy

based upon theory of implied-in-fact contract for services

rendered during option years. Contract Disputes Act of 1978,

§ 8(d), 41 U.S.C.A. § 607(d); 31 U.S.C.A. § 1341.

[4] UNITED STATES k62

393k62

Generally, Antideficiency Act prohibits government

officials and employees from making expenditures or

incurring obligations in excess of available appropriations or

in advance of appropriations. 31 U.S.C.A. § 1341.

[4] UNITED STATES k82(1)

393k82(1)

Generally, Antideficiency Act prohibits government

officials and employees from making expenditures or

incurring obligations in excess of available appropriations or

in advance of appropriations. 31 U.S.C.A. § 1341.

[5] UNITED STATES k79

393k79

Pi sacl aca a aN et My ve

As far as government contracts are concerned,

| Antideficiency Act bars federal employee or agency from

4 entering into contract for future payment of money in

j advance of, or in excess of. existing appropriation. 31

US.C.A. § 1341.

: [6] UNITED STATES k79

393k79

page ay eee

Antideficiency Act did not prohibit funds from being

? obligated before they were both appropriated by Congress

and apportioned by Executive Branch. 31 US.C.A. §§ 1341,

1512, 1517.

[7] UNITED STATES k62

393k62

Contracting officer's exercise of option to renew Navy

contract after funds were appropriated by Congress did not

violate Antideficiency Act, even though funds were obligated

before they were apportioned by Executive Branch. 31

U.S.C.A. §§ 1341, 1512, 1517.

[8] UNITED STATES k70(35)

393k70(35)

Provision of Navy contract requiring Navy to exercise

option to renew "not later than 1 October, 1988" permitted

Navy to exercise option on that date, even though underlying

contract expired on September 30; Navy's ability to exercise

option was not tied to original performance period of the

contract.

[9] UNITED STATES k70(35)

393k70(35)

Contractor was not compelled to perform voluntary

services when Navy contract expired and Navy did not

exercise option to renew until the next day; to the extent that

contractor maintained personnel and equipment at site during

period in question, it did not show that Navy either requested

or compelled it to do so or that Navy accepted those services

in violation of statute prohibiting voluntary services. 31

U.S.C.A. § 1342.

[10] UNITED STATES k70(35)

393k70(35)

Although Navy deviated from Cancellation of Items

clause in drafting contract schedule that gave Navy until day

after contract expired to exercise option to renew, without

first obtaining proper authority to do so, contractor could not

rely on deviation in arguing that Navy's exercise of options

running for two fiscal years were ineffective, since >

Cancellation of Items clause was primarily for benefit of

government. 48 C.F.R. § 17.109(a).

*1443 Herbert L. Fenster, McKenna & Cuneo, L.L.P.,

Denver, CO, argued for appellant. With him on brief were

Michael T. Janik and David Kasanow, Washington, DC.

Geoffrey C. Cook, Attorney, Commercial Litigation

Branch, Civil Division, Department of Justice, Washington,

DC, argued for appellee. With him on brief were Frank W.

Hunger, Assistant Attorney General, and David M. Cohen,

Director.

Before LOURIE, CLEVENGER, and SCHALL, Circuit

Judges.

SCHALL, Circuit Judge.

The Cessna Aircraft Company ("Cessna") appeals from

March 12. 1993 decision of *1444 Armed Services Board of

Contract Appeals ("Board") on cross-motions for partial

summary judgment in Cessna Aircraft Co., ASBCA No.

43196. 93-3 BCA § 25,912, 1993 WL 89795 (Mar. 12, 1993)

(Cessna I ). Cessna also appeals from Board's September 21,

1995 decision following a hearing in same case, 96-1 BCA §

27.966, 1995 WL 575173 (Sept. 21, 1995) (Cessna II). In

those decisions, Board denied Cessna’s claims that Naval Air

Systems Command of United States Navy ("Navy" or

"NAVAIR") failed to exercise, in a proper and timely

manner, certain options under a contract between Cessna and

Navy. We affirm.

BACKGROUND

This appeal arises out of Contract No.

Ni00019-83-C-0090, awarded to Cessna by Navy, under

which Cessna was required to provide training, and related

technical and maintenance support, for undergraduate naval

flight officers at U.S. Naval Air Station in Pensacola, Florida.

See Cessna I, 93-3 BCA at 128,876. [FN1]

FN1. We addressed other claims that Cessna made

arising out of the same contract in Dalton v. Cessna Aircraft

Co., 98 F.3d 1298 (Fed.Cir. 1996).

The contract called for Cessna to provide flight training

services during five program years, commencing August 1,

1984, and ending September 30, 1988. Cessna I, 93-3 BCA at

128.876. Each program year ended on last day of

government's fiscal year, September 30. Id. In addition,

contract contained an option provision allowing Navy to

extend contract performance for three additional years. Id.

Section H-6 of contract Schedule, entitled "Exercise of

Option,” established conditions on Navy's exercise of option.

Section H-6 provided as follows:

Pursuant to "Option to Extend Services"

clause, option for three years will be

exercised, if at all, in writing by a unilateral

modification to this contract issued by

Contracting Officer, Naval Air Systems

Command, not later than 1 October 1988.

Id. Each option year ran from October | to September 30;

that is, first option year ran from October 1, 1988 to

September 30, 1989, second option year ran from October 1,

1989 to September 30, 1990, and third option year ran from

October 1, 1990 to September 30, 1991. Cessna I, 93-3 BCA

at 128.876. The Navy had to notify contractor of availability

of funds for second and third option years.

The timing of this notification was addressed by section

H-8 of contract Schedule, entitled "Multiyear Procurement,"

which stated that:

If three year option is exercised, date within which

contracting officer

... Will notify Contractor of availability of

funds sufficient for performance of

requirements for the Second Option Year

(Fiscal Year 1990) is 1 October 1989. Third

Option Year (Fiscal Year 1991) is 1 October

1990.

Id. at 128.877. The contract further incorporated by

reference, inter alia, two Defense Acquisition Regulation

("DAR") provisions concerning multiyear aspects of contract.

The first, named "Cancellation of Items" clause, addressed

cancellation of contract based on a lack of availability of

funds. This clause stated in pertinent part:

(b) As used herein, term "cancellation" means that

Government is canceling, pursuant to this clause, its

requirements for items as set forth in Schedule for all fiscal

years (1 October - 30 September) subsequent to that in which

notice of cancellation is provided. Such cancellation shall

occur only if Contracting Officer (i) notifies Contractor that

funds will not be available for contract performance for next

succeeding fiscal year and any subsequent fiscal year; or (11)

fails to notify Contractor prior to beginning of next

succeeding fiscal year that funds have been made available

for performance in succeeding fiscal year.

DAR § 7-1903.33(d). [FN2] A related clause addressed

contract execution once funds became available. It stated in

pertinent part that:

FN2. The DAR has since been replaced by the Federal

Acquisition Regulation ("FAR"). The analogous FAR

provision is 48 C.F.R. § 52.217- 2 (1996).

Upon availability to Contracting Officer of funds for

performance of requirements in *1445 next succeeding fiscal

year, Contracting Officer shall notify Contractor in writing of |

amount of funds available for contract performance in next

succeeding fiscal year and contract shall be modified |

accordingly.

DAR § 7-1903.33(c). [FN3]

FN3. No FAR provision analogous to section

7-1903.33(c) currently exists.

The contract was awarded on May 10, 1983. Sometime

in either late March or early April of 1988, during final

program year of original five-year term of contract, Cessna

contacted contracting officer ("CO") to inquire about whether

Navy intended to exercise three year option. Cessna II, 96-1

BCA at 139,686. In response, by letter dated April 18, 1988,

CO informed Cessna that Navy did intend to exercise option,

stating that:

1. You are hereby notified of our intent to

exercise option for three option years under

Contract N00019-83-C-0090. Pursuant to

Special Provision H-6, "Exercise of Option,"

we will exercise option for three option

years, if at all, not later than 1 October 1988.

Id.

On August 3, 1988, during negotiation meetings

concerning unrelated claim for equitable adjustment made by

Cessna, Cessna again raised issue of when Navy intended to

exereise option. Id. At that time, Cessna expressed its view

that option had to be exercised before October 1, 1988. Id.

On September 26, 1988, in a telephone conversation between

CO and a Cessna official, CO asked whether, because

October 1, 1988 was a Saturday, it would be acceptable for

option to be exercised on October 3, 1988. Cessna II, 96-1

BCA at 139,687. The Cessna official responded that October

3 would be a problem and that Cessna needed to receive

exercised option on October 1. Id. CO informed Cessna

official at that time that she would exercise option via

facsimile on October 1. Id.

During period September 27-30, 1988, in midst of further

negotiations regarding Cessna's equitable adjustment claim,

Cessna reiterated its view that Navy had to exercise option by

September 30, 1988, while the Navy contended that it had

until October 1. Id. As of September 30, 1988, the

Department of Defense Appropriation Act, 1989, Pub.L. No.

100-463, 102 Stat. 2270 (1988), from which the contract at

issue would be funded, had been passed by Congress but had

not yet been signed by the President. Cessna II, 96-1 BCA at

139.687. On September 30, the CO informed Cessna that the

option would be faxed on October 1. Id. at 139,688.

Anticipating the passage of the appropriation act, on

September 30, 1988, a NAVAIR budget analyst executed a

"Financial Accounting Data Sheet"--used to make funds

available for obligation--with the proviso "EXECUTION OF

THIS DOCUMENT IS CONTINGENT ON

CONGRESSIONAL PASSAGE OF THE FY89

APPROPRIATION ACT OR OTHER AUTHORITY.” Id. at

139,687-88.

On October 1, 1988, after receiving word from a

NAVAIR division director that the President had signed the

appropriation act, the C O executed the necessary contract

modification, deleted the proviso from the Financial

Accounting Data Sheet, and faxed the modification and data

sheet to Cessna. Id. at 139,688. Cessna personnel found the

10a

faxed version of the modification and data sheet on Monday,

October 3, 1988. Cessna II, 96-1 BCA at 139,689.

By letter dated October 7, 1988, Cessna took the position

that the purported modification was ineffective. Id. The letter

further stated that Cessna would continue to provide services

and would submit a proposal for continuation of the work.

Id. at 139,689-90. On December 5, 1988, Cessna submitted a

proposal to the Navy for providing services for the three

option years. Id. at 139,690. In its letter, Cessna stated that

it was proceeding under the assumption that its services

would soon be embodied in a definitive contract. By letter

dated December 7, 1988, the CO responded that the option

was exercised properly on October 1, 1988, and instructed

Cessna to continue performance in accordance with the

contract as modified by the option. Cessna II, 96-1 BCA at

139,690. Cessna provided services throughout the three year

option period. Similar to the first option year, for the second

and third option years, pursuant to section H-8 of the

contract, the Navy transmitted the appropriate *1446

modifications on October 1, 1989, and October 1, 1990,

respectively.

LN Pee eee Te SEE eT i SST Pa

IT.

In April of 1991, Cessna submitted a certified claim to

the CO, as revised in June of 1991, seeking approximately

$25.7 million as additional compensation for work performed

during the three year option period. The CO neither issued a

final decision nor informed Cessna when such decision

would be issued within the sixty day time limit of Section

6(c) of the Contract Disputes Act ("CDA"), 41 U.S.C. §

605(c). [FN4] Cessna appealed this deemed denial to the

Board. [FN5]

lla

FN4. Section 605(c)(2) provides that "[a] contracting

officer shall, within sixty days of receipt of a submitted

certified claim over $100,000-- (A) issue a decision; or (B)

notify the contractor of the time within which a decision will

be issued." 41 U.S.C. § 605(c)(2) (1994).

FNS. Section 605(c)(5) of the CDA provides in pertinent

part that "[a]ny failure by the contracting officer to issue a

decision on a contract claim within the period required will

be deemed to be a decision by the contracting officer denying

the claim and will authorize the commencement of the appeal

or suit on the claim as otherwise provided in this chapter."

41 U.S.C. § 605(c)(5) (1994).

Before the Board, Cessna argued, inter alia, that: (i) the

CO violated the Antideficiency Act and attendant regulations

by obligating funds for the first and third years of the

three-year option period prior to apportionment and

allocation of the funds (Counts I and XIII); (ii) the CO's

actions in deleting the proviso on the Financial Accounting

Data Sheet rendered the option exercise ineffective (Count

III); (iii) the Navy failed to exercise the option, in a timely

manner, such that the contract was canceled (Count V); (iv)

by exercising the option on October 1, 1988, the Navy

required Cessna to provide voluntary services in violation of

the Antideficiency Act (Count VI); and (v) the second and

third option years were canceled because the CO did not

‘ssue a notice of funds availability prior to the beginning of

the succeeding fiscal year (Counts VIII and XI). [FN6]

Cessna I, 93-3 BCA at 128,880-81. In Count XIV, Cessna

sought to recover compensation for services rendered during

the option years based upon a theory of implied-in-fact

contract. Cessna II, 96-1 BCA-at 139,683.

12a

FN6. While Cessna made other claims before the Board,

those claims are not relevant to the present appeal and are not

discussed in this opinion.

In due course, the parties filed cross-motions for

summary judgment with respect to Counts I, III, VIII, XI],

and XIII. The Board granted the Navy's motion for summary

judgment as to Counts I, III, and XIII, and denied summary

judgment to both sides on Counts VIII and XI. Cessna I, 93-3

BCA at 128,911. After a hearing on the merits, the Board

issued a decision denying Cessna relief on Counts V, VI,

VIII, and XI. See Cessna II, 96-1 BCA at 139,683, 139,701.

In sum, the Board denied Cessna relief as to all of its claims

pertinent to its appeal. This appeal followed.

DISCUSSION

Pursuant to the CDA, 41 U.S.C. §§ 601-613 (1994), we

review decisions of the Board under the following standard:

the decision of the agency board on any

question of law shall not be final or

conclusive, but the decision on any question

of fact shall be final and conclusive and

shall not be set aside unless the decision is

fraudulent, or arbitrary, or capricious, or so

grossly erroneous as to necessarily imply

bad faith, or if such decision is not

supported by substantial evidence.

41 U.S.C. § 609(b).

[1] The Board's conclusions of law are reviewed de novo.

See Ingalls Shipbuilding, Inc. v. Dalton, 119 F.3d 972, 975

(Fed.Cir.1997). Such legal conclusions include grants of

13a

summary judgment. See Confederated Tribes of Colville

Reservation v. United States, 964 F.2d 1102, 1107

(Fed.Cir.1992) (noting that the grant of summary judgment is

a legal conclusion).

[2] The Board's decision on a finding of fact may not be

set aside unless the appellant can meet its burden of

establishing that the finding is arbitrary, capricious, so

erroneous as to necessarily imply bad faith, or not supported

by substantial evidence. Erickson Air Crane Co. v. United

States, 731 F.2d 810, 814 (Fed.Cir.1984); see William F.

Klingensmith, Inc. v. United States, 731 F.2d 805, *1447 809

(Fed.Cir.1984); J.M.T. Mach. Co. v. United States, 826 F.2d

1042, 1046 (Fed.Cir.1987). On appeal, Cessna makes the

following contentions: (i) the Board erred in sustaining the

Navy's actions in obligating funds in advance of carrying out

the apportionment process (Counts I and XIII); (ii) the Board

incorrectly concluded that the option was properly exercised

even though the CO deleted the proviso on the Financial

Accounting Data Sheet (Count III); (iii) the Board

erroneously determined that the option was timely exercised

(Count V); (iv) the Board erred in concluding that the Navy

did not require Cessna to perform voluntary services (Count

VI); and (v) the Board incorrectly refused to give precedence

to the Cancellation of Items clause and therefore erred in

concluding that the second and third option years of the

contract were not canceled (Counts VIII and XI). For the

reasons set forth below, we reject Cessna's arguments.

[3] Before reaching the merits of the appeal, we must

address a preliminary issue raised by the Navy. Before the

Board, the Navy argued that Cessna lacked standing to

contest matters relating to the Navy's compliance with

———————

l4a

funding statutes. The Board rejected this challenge to its

jurisdiction. The Board noted that under the CDA, it had

jurisdiction "to decide any appeal from a decision of a

contracting officer ... relative to a contract made by its

agency." Cessna I, 93-3 BCA at 128,881 (citing 41 U.S.C. §

607(d)). The Board concluded that Cessna's appeal related to

its contract with the Navy and that therefore Cessna's

standing to bring the appeal and the Board's jurisdiction to

decide it were "grounded in the provisions of the CDA." Id.

As it did before the Board, the Navy argues that the

Antideficiency Act does not provide Cessna with a private

right of action. Thus, it asserts that Cessna's appeal from the

Board's decision regarding Counts I, III, VI, and XIII should

be dismissed because those counts involve claims relating to

the government's funding of its contractual obligations, and

no private right of action exists under the Antideficiency Act

with respect to such matters. Quoting from Hagan v. United

States, 229 Ct.Cl. 423, 671 F.2d 1302 (1982), the Navy

argues that the Antideficiency Act "sets forth its own

discipline and penalties, and does not rely on private

enforcement through Tucker Act litigation." Id., 671 F.2d at

1305. We disagree.

As the Board noted, pursuant to 41 U.S.C. § 607(d), it has

jurisdiction "to decide any appeal from a decision of a

contracting officer ... relative to a contract made by its

agency." Cessna I, 93-3 BCA at 128,881. Section 607(d)

further provides that, "[i]n exercising this jurisdiction, the

agency board is authorized to grant any relief that would be

available to a litigant asserting a contract claim in the United

States Court of Federal Claims."

Like the Board, we view Cessna's claims as "grounded in

the CDA.” Cessna's contract with the Navy was governed by

the CDA, and it was under the CDA that Cessna submitted its

15a

claim to the contracting officer for additional compensation

for work performed during the three year option period. The

fact that Cessna argues that the Navy violated the

Antideficiency Act and attendant regulations and the fact that

Cessna seeks compensation from the Navy based upon a

theory of implied-in-fact contract for services rendered

during the option years do not mean that Cessna is seeking

relief under the Antideficiency Act.

In Gould, Inc. v. United States, 935 F.2d 1271

(Fed.Cir.1991), Gould, Inc. ("Gould") was awarded a

five-year contract by the Navy to build tactical radios. Id. at

1272. During contract performance, Gould encountered

unanticipated difficulty in designing a radio that met the

contract's performance requirements. Id. As a result, it

submitted a claim to the contracting officer seeking to

recover the costs it allegedly incurred in achieving adequate

design. Id. Gould based its theory of recovery in part on the

contention that the government had violated 10 U.S.C. §

2306(h)(1), by failing to supply a "stable design" for a

multiyear procurement. According to Gould, this meant that

the contract was illegal from its inception. Gould, 935 F.2d at

1272. After the contracting officer denied the claim, Gould

appealed to the United States Claims Court. [FN7] In due

course, *1448 the court granted the government's motion to

dismiss under Rule 12(b)(4) of the court, for failure to state a

claim upon which relief could be granted. Id. at 1273. On

appeal by Gould, we vacated the dismissal and remanded the

case for further proceedings. Id. at 1276. In so doing, we

held that Gould's complaint contained sufficient facts to state

a claim upon which relief could be granted. Id. at 1275-76.

FN7. The Claims Court was renamed the Court of

Federal Claims pursuant to § 902 of the Federal Courts

l6a

Administration Act of 1992, Pub.L. No. 102- 572. 106 Stat.

4506. 4516 (1992), effective October 29, 1992.

Upon remand, the government filed a motion to dismiss

for lack of jurisdiction. The Court of Federal Claims granted

the motion. The court read Gould's complaint as based solely

on a contract with the United States but at the same time as

alleging that there was no "stable design" and that the

contract was illegal. Under these circumstances, the court

reasoned, the only possible basis for contract jurisdiction was

a contract implied in law, but such a contract was not within

the court's jurisdiction. Gould, Inc. v. United States, 29 Fed.

Cl. 758, 761 (1993). Again, Gould appealed.

On appeal, we held that the trial court had erred in

dismissing Gould's complaint for lack of jurisdiction. Gould,

Inc. v. United States, 67 F.3d 925 (Fed.Cir.1995). Noting

that Gould relied on its underlying contract with the Navy as

a basis for jurisdiction in the Court of Federal Claims, we

stated that "there is no question that Gould's complaint

alleges the existence of express contract, albeit one entered

into allegedly in violation of 10 U.S.C. § 2306(h)(1)(D)." Id.

at 929. Weconcluded: "This is sufficient ... to confer

jurisdiction in the Court of Federal Claims.” Id. We also

concluded: "[{E]ven if Gould's allegations of express contract

are insufficient, Gould's amended complaint, when viewed in

a light most favorable to Gould, alleges the existence of

implied-in-fact contract--a separate basis for jurisdiction in

the Court of Federal Claims." Id. at 930. Accordingly, we

again vacated the trial court's decision and remanded the case

for further proceedings.

Similarly, in this case, Cessna argues that the Navy's

actions in exercising the option in 1988 violated the

Antideficiency Act, thereby rendering the option exercise

inoperative and canceling the contract. However, Cessna

17a

contends, because it supplied services that the Navy accepted

and from which the Navy benefited, after all legal

requirements had been met (because the appropriations

process had been completed), it is entitled to recover under

implied-in-fact contracts for each of fiscal years 1989, 1990,

and 1991. Under these circumstances, Cessna has put forth a

cognizable claim for relief. See American Telephone and

Telegraph Co. v. United States, 124 F.3d 1471, 1479

(Fed.Cir.1997) ("An implied-in-fact contract arises when, in

the absence of express contract, the parties’ behavior leaves

no doubt that what was intended was a contractual

relationship permitted by law."). Cessna's claims in Counts I,

III, VI, and XIII were properly before the Board. [FN8]

FN8. The Navy's reliance on Hagan is misplaced. In that

case, the plaintiff, Richard Hagan, sought monetary recovery

for services provided while serving on a grievance panel.

Hagan, 671 F.2d at 1304. Hagan alleged that the government

violated the prohibition against its acceptance of voluntary

services under 31 U.S.C. § 665(b)--the predecessor to present

31 U.S.C. § 1342--which made it illegal for him to sit on the

grievance panel. Id. at 1305. The United States Court of

Claims noted that there was no express contract, and it also

rejected any theory of implied-in-fact contract because there

plainly was no consensual agreement between Hagan and the

government for Hagan's services. Id. at 1304. By contrast, in

this case, Cessna made a nonfrivolous allegation that the

government violated a statute, thus rendering the contract

void, and that the services Cessna provided during the option

years were done so under a consensual! agreement with the

government, thereby giving rise to implied- in-fact contract.

Having concluded that Cessna's claims on appeal with

respect to Counts I, II], VI, and XIII are properly before us,

we turn to the merits.

18a

Il]

By way of background, the Anti-deficiency Act finds its

origins in a statute enacted in 1870, known as the Act of July

12, 1870, ch. 251, § 7, 16 Stat. 230, 251. The statute

addressed the problem that Executive Branch officials were

obligating funds before they were appropriated by Congress,

and then making deficiency requests for appropriations

*1449 that Congress had little choice in deciding because

government agencies had basically committed the United

States to make good on its promises. See, e,g., 59 Comp.

Gen. 369, 372 (1980).

[4][5] The present version of the Act, found at 31 U.S.C.

§ 1341 (1994), [FN9] provides in pertinent part as follows:

FN9. While the central provision of the Act

is found at 31 U.S.C. § 1341, other

provisions have been passed to supplement

this provision, including 31 U.S.C. §§ 1342,

1501-1519 (1994).

§ 1341. Limitations on expending and obligating amounts

(a)(1) An officer or employee of the United States

Government or of the District of Columbia government may

not -

(A) make or authorize expenditure or obligation

exceeding amount available in appropriation or fund for the

expenditure or obligation;

19a

(B) involve either government in a contract or obligation

for the payment of money before appropriation is made

unless authorized by law.

Generally, the Act prohibits government officials and

employees from making expenditures or incurring

obligations in excess of available appropriations or in

advance of appropriations. See Blackhawk Heating &

Plumbing Co. v. United States, 224 Ct.Cl. 111, 622 F.2d 539,

542 n. 4 (1980). As far as government contracts are

concerned, the Act "bars a federal employee or agency from

entering into a contract for future payment of money in

advance of, or in excess of, existing appropriation." Hercules

Inc. v. United States, 516 U.S. 417, ----, 116 S.Ct. 981, 987,

134 L.Ed.2d 47 (1996).

By its terms, the Antideficiency Act restricts the ability of

the government to enter into multi-year contracts because

funds generally cannot be obligated beyond the current fiscal

year. This led to problems in the area of military

procurement, as described in the following passage from a

Senate Report:

Some services and supplies now being procured with

appropriations available for only 1 year require substantial

investment by the contractor for equipment having a useful

life longer than 1 year, or extensive investment in the hiring

and training of personnel. These contracts are for such

activities as base maintenance, aircraft and equipment

overhaul, vehicle repair, and pilot training. If the contractor

can obtain only a 1-year contract, his quoted price must cover

all these expenses or he runs the risk of never recovering his

unamortized investment if he loses the contract for the

ensuing year or years. In such circumstances, however, a

successful contractor is in a position to underbid competitors

in later years since the competitors must include in their bid

20a

prices the same initial investment costs that the contractor |

confronted. As a result, competition is reduced and the :

Government can be overcharged in later years.

S. Rep. No. 90-1313, at 1-2 (1968), reprinted in 1968

U.S.C.C.A.N. 2480, 2480-81.

To address these concerns, 10 U.S.C. § 2306(g) was

enacted; it permits the government to enter into specified |

types of military procurement contracts having performance

periods of up to five years, with option to extend |

performance by a period not exceeding three additional years.

[FN10] If funds are not in fact appropriated in a subsequent

*1450 fiscal year, section 2306(g)(3) provides that the

"contract shall be canceled or terminated."

FN10. Section 2306(g) provides in relevant part:

(g)(1) The head of an agency may enter into contracts for

periods of not more than five years for the following types of

services (and items of supply related to such services) for

which funds would otherwise be available for obligation only

within the fiscal year for which appropriated -

instructor skills (for example, pilot and other aircrew

members; foreign language training);

whenever he finds that -

(i) there will be a continuing requirement for the services

consonant with current plans for the proposed contract

period;

2la

(ii) the furnishing of such services will require a

substantial initial investment in plant or equipment, or the

incurrence of substantial contingent liabilities for the

assembly, training, or transportation of a specialized work

force; and

(iii) the use of such a contract will promote the best

interests of the United States by encouraging effective

competition and promoting economies in operation.

(2) In entering into such contracts, the head of the agency

shall be guided by the following principles:

(B) Consideration shall be given to the desirability of

obtaining an option to renew the contract for a reasonable

period not to exceed three years, at prices not to include

charges for plant, equipment and other nonrecurring costs,

already amortized.

[6] Cessna's first contention is that the Antideficiency

Act, in combination with its implementing regulations and

certain other funding statutes, prohibits funds from being

obligated before they have been both appropriated by the

Congress and apportioned by the Executive Branch. [FN11]

Cessna argues that 31 U.S.C. § 1512, which requires that

appropriated funds be apportioned, [FN12] and 31 U.S.C. §

1517, which prohibits government officials or employees

from authorizing obligations that exceed apportionment,

22a

[FN13] prevent the obligation of funds, even if appropriated,

before they have been apportioned. As a general matter,

Cessna maintains that permitting funds to be obligated in

advance of apportionments is inconsistent with prohibiting

funds from being obligated in excess of apportionments. If

no apportionment has been made, Cessna contends, any

obligation necessarily exceeds the approved apportionment

(of zero).

FN11. Cessna further contends that the funds must be

allocated, allotted, and suballotted to the subagency level,

and that the agency must commit the funds to a contract,

before funds can be obligated to a contract.

FN12. Section 1512(a) provides:

(a)Except as provided in this subchapter, an

appropriation available for obligation for a definite period

shall be apportioned to prevent obligation or expenditure at a

rate that would indicate a necessity for a deficiency or

supplemental appropriation for the period. An appropriation

for an indefinite period and authority to make obligations by

contract before appropriations shall be apportioned to achieve

the most effective and economical use. An apportionment

may be reapportioned under this section.

FN13. Section 1517(a) provides that "[a]n officer or

employee of the United States Government ... may not make

or authorize an expenditure or obligation exceeding--(1) an

apportionment."

23a

As further support for its position, Cessna points to the

Department of Defense ("DOD") Accounting Manual, page

22-6, paragraph 4a, which states that:

An apportionment or reapportionment is a

distribution made by OMB [Office of

Management and Budget] of amounts

available for obligation in appropriation or

fund account. Except in certain instances, ...

apportionments and reapportionments by

OMB are required before funds may be

obligated.

(emphasis added). In addition, Cessna cites to the Navy

Comptroller Manual ("NCM"), paragraphs 073002(2) and

073100, [FN14] as establishing *1451 a particular funding

process wherein the first step is to apportion funds, after

which they are allocated to the Secretary of Defense, and

then allotted, suballotted, and committed to the Navy. Cessna

asserts that because the CO attempted, on October 1, 1988, to

exercise the option and to obligate funds before they had

been apportioned, she acted without authority and the option

exercise therefore was ineffective.

FN14. Paragraph 073002(2) states that:

On the basis of the enacted Department of the Navy

appropriations, the Treasury Department prepares

appropriation warrants which, after being countersigned by

the General Accounting Office, are forwarded to the

Department of the Navy as certification that the specific

amounts are available for obligation and expenditure. Fund

availability is established through compliance with

procedures for submission, review, and Office of Secretary of

Defense (OSD)/Office of Management and Budget (OMB)

approval of apportionments and/or financial plans. In

24a

conjunction with the apportionment procedure, the Office of

the Assistant Secretary of Defense (Comptroller) establishes

the authorized level of obligation and expenditure for each

appropriation, as well as any controls or limitations required

below the appropriation level, as a means of requiring

compliance with the terms of approved programs and

budgets. In passing obligational authority (as an allocation or

as a limitation within operating budget authority) to other

echelons of command, the Comptroller creates administrative

subdivisions of appropriated funds with clearly defined

responsibility for 31 U.S.Code 1517 violations, 1.e., for the

creation of any obligation or making of any expenditure in

excess of an apportionment or reapportionment, or of an

amount specified in an administrative subdivision thereof.

The process of distributing financial authority is continued

through the chain of command in the form of suballocations,

allotments, operating budgets, or operating targets.

Allotments, as well as the specified obligational authority

within operating budgets, constitute administrative

subdivisions of appropriated funds, subject to the sanctions

of the Anti-Deficiency Act (31 U.S.Code 1518 and 1519) for

the holders of allotments or operating budgets. Operating

targets (e.g., those established for individual ships by type

commanders) are administrative limitations of funds for

which the legal responsibility is retained by the grantor.

Paragraph 073100 states, in pertinent part, that "[t]he action

required to obtain release of appropriated funds by means of

the apportionment process is the initial step in the budget

execution phase."

We reject Cessna's arguments. As noted above, 31

U.S.C. § 1341(a) prohibits the government from making

expenditures or incurring obligations before funds have been

appropriated. However, as for the apportionment process,

addressed by 31 U.S.C. §§ 1511-1519, no such timing

SL gp il tate Ty ke Bae Se tt ns aE

25a

limitation exists. For example, section 1512 merely requires

appropriations to be apportioned to prevent obligations at

rates that could result in the need for a deficiency or

supplemental appropriation. Section 1513 provides a time

table for carrying out the apportionment process, but is silent

on the issue of whether the apportionment process must be

carried out before obligations can be incurred. For its part,

section 1517 prohibits government officials or employees

from authorizing obligations that exceed apportionments, but

says nothing about incurring obligations prior to carrying out

the apportionment process. In sum, the relevant statutory

provisions do not prohibit government agencies from

incurring contractual obligations before completing the

apportionment process. The remaining sections pertaining to

apportionments are similarly silent.

This same reasoning applies to paragraphs 073002(2) and

073100 of the NCM; these paragraphs say nothing about the

timing of incurring obligations versus carrying out the

apportionment process. Therefore, they are of no assistance

to Cessna. In addition, we note that paragraph 022064 of the

NCM, entitled "Availability of Funds Prior to

Apportionment," contemplates the possibility of incurring

obligations before apportionment. It states:

After the beginning of the fiscal year and

prior to the specific allocation of funds

pursuant to apportionment to the head of the

responsible office ... the head of the

responsible office is authorized by the

Comptroller of the Navy to suballocate

funds and to issue allotments under any

appropriation act of such fiscal year in such

amounts as will not exceed the amount

contained in the appropriation warrant or the

26a

request for apportionment and allocation

submitted to the Comptroller of the Navy....

Upon issuance of the approved budget

activity allocations pursuant to

apportionment, the limitations of such

allocations will apply to all suballocation

and allotment action taken prior to the

receipt of such budget activity allocations.

The provision permits allotments and suballotments to be

issued before apportionment, with restrictions as to their

amounts. It would logically follow that obligations may also

be incurred, with the same amount restrictions.

Finally, we turn to the DOD Accounting Manual,

paragraph 4a, page 22-6 ("paragraph 4a"). Initially, we

assume, without deciding here, that this provision could be

properly considered a regulation. We must still determine

whether the provision is a binding regulation, whose breach a

contractor may assert against the government. The primary

intent of a statute or regulation must be to protect or benefit a

class of persons in order for that class to be able to bring suit

against the government for violating the statute or regulation.

See generally Rough Diamond Co. v. United States, 173

Ct.Cl. 15, 351 F.2d 636, 640, 642 (1965). We have stated

that "if government officials make a contract they are not

authorized to make, in violation of a law enacted for the

contractor's protection, the contractor is not bound by

estoppel, acquiescence, or failure to protest." LaBarge

Prods., Inc. v. West, 46 F.3d 1547, 1552 (Fed.Cir.1995)

(citing Chris Berg, Inc. v. United States, 192 Ct.Cl. 176, 426

F.2d 314, 317 (1970) and Rough Diamond, 351 F.2d at

639-43); see Applied Devices Corp. v. United States, 219

Ct.Cl. 109, 591 F.2d 635, 640-41 (1979). However, if the

primary intended beneficiary of a statute or regulation is the

27a

government, then a private party cannot complain about the

government's failure to comply with that statute or *1452

regulation, even if that party derives some incidental benefit

from compliance with it. See Rough Diamond, 351 F.2d at

642; Hartford Accident & Indemnity Co. v. United States,

130 Ct.Cl. 490, 127 F.Supp. 565, 567 (1955).

In this case, paragraph 4a is primarily intended to benefit

the government, not contractors such as Cessna. The

provision is best described as internal operating provision for

the management of funds within the agency. In Blackhawk

Heating & Plumbing Co. v. United States, 224 Ct.Cl. 111,

622 F.2d 539 (1980), the Court of Claims rejected the

argument that the Antideficiency Act places restrictions not

only on the amount being appropriated, but also on the

administrative divisions made with respect to the

appropriations. Id., 622 F.2d at 552 n. 9. The court stated

that such administrative barriers "are purely of in-house

accounting nature and, as such are irrelevant to any

determination respecting the availability of appropriated

funds." Id. Paragraph 4a encourages Navy officials to follow

particular administrative procedures to ensure that obligated

funds are properly accounted for, thereby preventing officials

from obligating more funds than have been appropriated.

We also find instructive the Supreme Court's reasoning in

American Farm Lines v. Black Ball Freight Service, 397 U.S.

532, 90 S.Ct. 1288, 25 L.Ed.2d 547 (1970). In that case, the

Interstate Commerce Commission ("ICC") had promulgated

rules pertaining to processing applications for granting motor

carriers temporary operating authority. Id. at 534, 90 S.Ct. at

1290. One of those rules required applicant for such

authority to submit with its application a supporting

statement containing certain specified information. Id. In the

application of one motor carrier, the supporting statement

28a ~

accompanying the application failed to contain some of the

required information. Id. at 537, 90 S.Ct. at 1292. In due

course, despite the application's deficiencies, the ICC granted

the motor carrier temporary operating authority. American

Farm Lines, 397 U.S. at 536, 90 S.Ct. at 1291. This grant

was challenged by other motor carriers on the ground that the

ICC failed to "require strict compliance with its own rules.”

Id. at 537, 90 S.Ct. at 1291. In upholding the ICC's decision,

the Court noted that the rules in question were not intended

to confer important procedural benefits on individuals in the

face of unfettered agency discretion. Id. at 538-39, 90 S.Ct.

at 1292. Therefore, the Court stated, there was no reason to

depart from the general principle that " '[i]t is always within

the discretion of ... administrative agency to relax or modify

its procedural rules adopted for the orderly transaction of

business before it when in a given case the ends of justice

require it.'" Id. at 539, 90 S.Ct. at 1292 (quoting NLRB v.

Monsanto Chem. Co., 205 F.2d 763, 764 (8th Cir.1953)): see

also Contel Page Servs., Inc., ASBCA No. 32100, 87-1 BCA

FAR regulation requiring the CO to determine that funds

were available before exercising option related to internal

procedures and did not create any rights in the contractor, and

therefore the CO's failure to make the determination would

not render the exercise of the option ineffective). Paragraph

4a represents such internal procedural rule. Cessna may not

rely on this provision as evidence that the government

violated the Antideficiency Act in obligating funds before

they were apportioned.

[7] Thus, we hold that the CO's exercise of the option did

not violate the Antideficiency Act even though funds were

obligated before they were apportioned. [FN15]

29a

FN15. As noted, Cessna also contends that the option

exercise was deemed ineffective because the CO acted

without authority in deleting the proviso on the Financial

Accounting Data Sheet and then exercising the option.

Cessna's contention is without merit. The proviso provided

that execution of the data sheet was conditioned upon the

passage of the relevant appropriation act. This condition was

automatically satisfied when the President signed the

appropriation act. Therefore, in substance, the condition had

been satisfied, and it made no difference whether or not the

CO deleted the proviso before executing the data sheet.

‘.

[8] Cessna next contends that section H-6--the option

clause that required the Navy to exercise the option "not later

than 1 October 1988"--must be interpreted to have required

the Navy to exercise the option by September 30, 1988,

which the Navy failed to *1453 do. First, Cessna argues that

because funding for the original contract term expired at

midnight on September 30, 1988, the contract ceased to exist

at that point and "[o]nce the contract ceased to exist, the

option ceased to exist." Therefore, the deadline for proper

exercise of the option had to be September 30, 1988.

Second, Cessna contends that permitting the Navy to exercise

the option on October 1, 1988, would yield illegal result.

Cessna states that the Navy forced it to provide services

between midnight on September 30, 1988, when funding

ceased under the original contract, and the evening of

October 1, 1988, when the option was purportedly exercised.

Requiring Cessna to perform services in the absence of a

contractual obligation would violate the prohibition against

voluntary services set forth in 31 U.S.C. § 1342. [FN16] In

this case, Cessna contends, such services included providing

the support needed in order to fly aircraft and operate flight

30a

simulators, retaining personnel at the site, and performing

maintenance services to maintain aircraft, radar, simulators,

spare parts, etc. Cessna states that in order to sustain the

validity of the contract, the option clause should be

interpreted to have required the Navy to exercise the option

by September 30, 1988.

FN16. Section 1342 provides in pertinent part that "[ajn

officer or employee of the United States Government ... may

not accept voluntary services for [the] government or employ

personal services exceeding that authorized by law except for

emergencies involving the safety of human life or the

protection of property.” 31 U.S.C. § 1342 (1994).

We disagree. First, the option clause states that the Navy

had to exercise the option "not later than 1 October 1988."

We give effect to a plain reading of the clause, which is that

the Navy had up until and including October 1, 1988, to

exercise the option. See McAbee Constr., Inc. v. United

States, 97 F.3d 1431, 1435 (Fed.Cir.1996); Triax-Pacific v.

Stone, 958 F.2d 351, 354 (Fed.Cir.1992). Furthermore, the

option did not cease to exist just because the original term of

performance under the contract expired at midnight on

September 30, 1988. Rather, the option remained viable until

October 1, 1988, on which date it was exercised by the Navy.

The Navy's ability to exercise the option was not tied to the

original performance period of the contract.

[9] Neither was Cessna compelled to perform voluntary

services between midnight on September 30 and the evening

of October 1, 1988. The Board made a finding of fact that

"there is no evidence that the Navy proposed, directed or

encouraged Cessna to incur rental and subcontractor costs.”

Cessna II, 96-1 BCA at 139,699. Cessna has not shown that

the finding is unsupported by substantial evidence. See

Koppers Co. v. United States, 186 Ct.Cl. 142, 405 F.2d 554,

3la

557-58 (1968). Moreover, to the extent that Cessna may

have maintained personnel and equipment at the site during

the period in question, it has not shown either that the Navy

requested or compelled it to do so or that the Navy accepted

those services in violation of section 1342. Rather. Cessna

itself chose to perform these services in anticipation that the

Navy might exercise the option on October 1, 1988. Not

having accepted the services, the government is not

responsible for subsidizing them. [FN17]

FN17. Cessna further argues that even if the Navy had

until October 1, 1988, to exercise the option, Cessna did not

receive notice of the option exercise until October 3. 1988.

rendering the option exercise untimely. In that regard,

Cessna challenges the Board's finding of fact that Cessna and

the CO reached an agreement that sending the option

modification by facsimile would be acceptable, and Cessna

also challenges the Board's reliance on the Navy's statement

to Cessna personnel on September 30 to wait by their

facsimile machines on October | to receive the option

exercise. See Cessna II. 96-1 BCA at 139,698.

We disagree. A Cessna official acknowledged that the

parties had an established practice of faxing modifications.

Cessna II, 96-1 BCA at 139,688. Therefore. notice was

effective upon receipt of the facsimile at Cessna's office on

October 1, even though Cessna personnel chose not to be in

the office at that time to receive the facsimile. See id. at

139,689. Furthermore, to the extent that Cessna's arguments

are directed to witness credibility determinations of the

Board, we find no compelling reason to alter those

determinations. In that regard, we have stated that credibility

determinations are "virtually unreviewable.” Statistica. Inc.

v. Christopher, 102 F.3d 1577, 1583 (Fed.Cir. 1996).

[10] Cessna's final argument is that the Navy's exercise of

the second and third option *1454 years, on October 1, 1989,

and October 1, 1990, respectively, were ineffective. Cessna

contends that the Cancellation of Items clause of the contract

conflicts with section H-8 of the contract Schedule because

the former clause stated that the contract was canceled if the

CO did not notify the contractor prior to the beginning of the

next succeeding fiscal year that funds were available for

performance in the succeeding year, while the latter clause

permitted the CO to notify Cessna of the availability of funds

on the first day of the succeeding fiscal year. In basic terms,

Cessna asserts, the Cancellation of Items clause required the

Navy to provide it notification by September 30, 1988, while

section H-8 gave the Navy until October 1.

Furthermore, Cessna argues that the Cancellation of

Items clause was a mandatory clause required to be included

in all multi-year contracts pursuant to DAR § 1-322.6(c),

{[FN18] and that section H-8 constitutes a deviation from the

Cancellation of Items clause under DAR § 1-109.1(i). [FN19]

Under those circumstances, says Cessna, DAR § 1-109.2

required that the Navy obtain authority before implementing

the deviation, which was not done. [FN20] Cessna asserts

that the failure to obtain a deviation rendered section H-8

unenforceable and that therefore the Navy's exercise of the

second and third option years was ineffective.

FN18. Section 1-322.6(c) states that DAR §

7-1903.33(d)--the Cancellation of Items clause--must be

included in multi-year service contracts. The analogous FAR

provision is 48 C.F.R. § 17.109(a) (1996).

FN19. Section 1-109.1(i) defines deviation to include the

situation where "a contract clause is set forth in ASPR

33a

[Armed Services Procurement Regulation] for use verbatim.

[and] a contract clause covering the same subject matter

which varies from the ASPR coverage [is used]." The

analogous FAR provision is 48 C.F.R. § 1.401 (1996).

FN20. Section 1-109.2 states that deviations from the

regulations affecting only one contract or procurement may

be authorized provided that (i) the circumstances justify a

deviation, and (ii) written notice of the deviation is furnished

to particular agency officials. The analogous FAR provision

is 48 C.F.R. § 1.403 (1996).

We reject Cessna's arguments. Initially, as a contractual

matter, section H-8 took precedence over the Cancellation of

Items clause. In that regard, the Order of Precedence clause

of the contract stated as follows:

In the event of inconsistency in this contract, unless

otherwise provided herein, the inconsistency shall be

resolved by giving precedence in the following order: (a) the

Schedule (excluding the Specifications); (b) General

Provisions; (c) the other provisions of the contract whether

incorporated by reference or otherwise; and (d) the

Specifications and (e) the Contractor's proposal No.

CMP-1351.

In this case, section H-8 was found in the contract's

schedule, while the Cancellation of Items clause was a

general provision. See Cessna II, 96-1 BCA at 139,699.

However, as Cessna points out, we must further consider the

propriety of including section H-8 in the contract at all

because it deviated from the DAR-mandated Cancellation of

Items clause, and the Navy did not seek authorization for its

inclusion.

34a

Cessna's argument on this point suffers from the same

defect as its first contention on appeal--that appropriated

funds must be apportioned before they are obligated. We

conclude that the primary purpose behind the Cancellation of

Items clause is to protect the government's interest by

encouraging government officials to monitor the availability

of funds for each fiscal year and to provide notice to

contractors accordingly. Consequently, the clause may not

form the basis for a contractor's right of action. In order for

contract performance to continue each year, the Cancellation

of Items clause required that the CO notify the contractor that

funds would be available for the succeeding fiscal year, act

which inherently required the CO to first ensure that

sufficient funds are in fact available. See DAR §

7-1903.33(d).

In ITT Federal Lab., A Division of IT&T Corp., ASBCA

(1969), rev'd on other grounds, 197 Ct.Cl. 11, 453 F.2d 1283

(1972), the contract in dispute contained two clauses: (i) a

Limitation of Price and Contractor Obligations clause, which,

in general, required the contracting officer to notify the

contractor when funds became available for the succeeding

program year, and limited the contractor's *1455 obligations

until such notice was given; and (ii) a Cancellation of Items

clause, which was substantively the same as the Cancellation

of Items clause at issue in this case. ITT, 69-2 BCA at

36,485-86. The Board referred to these provisions

collectively as "notice of availability of funds” provisions.

Id. at 36,490. In the course of deciding whether the

government had complied with these notice provisions, the

Board determined that a primary purpose of the provisions

was "to give [the government] control over the timing of

future expenditures of appropriated funds, a provision

MT ere

35a

necessary in the light of the practices by which C ongress

exercises budgetary control." [FN21] Id.

FN21. The Board in ITT also stated that another primary

purpose was "to relieve [the contractor] of any obligation to

incur production costs for successive years until funds were

assured from which to pay [it]." ITT, 69-2 BCA at

36,485-86. However, this stated purpose related not to the

contract's Cancellation of Items clause, but rather related to

its Limitation of Price and Contractor Obligations clause,

subsection (d), which stated in pertinent part that "[t]he

Contractor is not obligated to incur costs for the performance

required for any Program Year after the first unless and until

he has been notified in writing by the Contracting Officer of

an increase in availability of funds.” ASPR §

1-322.4(a)(1966).

The Navy apparently deviated from the Cancellation of

Items clause in drafting section H-8 without first obtaining

the proper authority to do so. However, because the

Cancellation of Items clause is primarily for the benefit of the

government, Cessna may not rely on the deviation in arguing

that the Navy's exercise of the options for fiscal years 1990

and 1991 was ineffective. Thus, Cessna is bound by section

H-8, and there is no dispute that the Navy fully complied

with the section.

CONCLUSION

For the foregoing reasons, the decision of the Board is

affirmed.

COSTS

Each party shall bear its own costs.

AFFIRMED.

DC2 6152431.1 05/27/98 06:49 PM

Appeal of Cessna Aircraft Company

Under Contract No. N00019-83-C-0090

March 12, 1993

APPEARANCE(S) FOR THE APPELLANT

Herbert L. Fenster, Esq.

Michael T. Janik, Esq.

Jeffrey P. Hildebrant, Esq.

McKenna & Cuneo

Washington, D.C.

APPEARANCE(S) FOR THE GOVERNMENT

Arthur H. Hildebrandt, Esq.

Navy Chief Trial Attorney

Douglas P. Hinds, Esq.

Associate Chief Trial Attorney

Evadne Sanichas, Esq.

Senior Trial Attorney

Ronald L. Fouse, Esq.

Trial Attorney

—

OPINION BY ADMINISTRATIVE JUDGE TING

ON CROSS-MOTIONS FOR SUMMARY JUDGMENT

Cessna Aircraft Company (Cessna) entered into a multiyear contract for

training Undergraduate Naval Flight Officers (UNFO) with the Navy.

Following the 5-program years of the contract, the Navy exercised an

option to continue the contract for another three years. Cessna alleges

that the exercise of the option was ineffective and submitted a $25

million claim for performance of contract services during the option

period. This appeal was docketed upon failure of the contracting officer

to issue a decision on Cessna's certified claim.

Cessna has filed a motion for partial summary judgment of 11 of 15

counts in its complaint. In Counts I, II, II], !V and VII, Cessna invokes

violation of various funding laws and regulations as grounds for invali-

dating the option exercise. In Counts VIII, IX, X, XI, XII and XIll,

Cessna invokes violation of funding laws and regulations as alternate

grounds for invalidating the Navy's notices of funds availability required

to be issued to continue the Second and Third Option Years should the

Board uphold the option exercise.

The Navy has cross moved for summary judgment on the same 11

counts.

The Navy considers funding contracts as internal ‘housekeeping’ matters,

and challenges Cessna's legal ‘standing’ to bring such matters before the

Board. We view the Navy's standing argument as going to our

jurisdiction to hear and decide issues which relate to the validity of the

Navy's option exercise and notices of funds availability. This

jurisdictional challenge will be more thoroughly addressed at the outset

of our decision.

The Board entertained a full day of oral argument on 10 December 1992.

GENERAL UNDISPUTED FACTS

1. On 10 May 1983, the Naval Air Systems Command (‘NAVAIR, ' 'the

Navy’ or 'the Government’) awarded Contract No. N00019-83-C-0090

(the ‘0090 contract’) to Cessna Aircraft Company (Cessna) (R4, tab 1).

The contract required Cessna to provide training services for

undergraduate naval flight officers at the U.S. Naval Air Station,

Pensacola, Florida, during five program years, commencing | August

1984, and ending 30 September 1988 (R4, tab | at 5-1 to 5-9). Each

program year ended on the last day of the Government's fiscal year (FY),

i.e., 30 September.

2. The 0090 contract required Cessna to provide, among other equipment

and services, 'services to assist in Radar and Navigation training of

Undergraduate Naval Flight Officers. These services shall consist of an

annual rate of 17,000 airborne training service hours . . . on Contractor-

furnished radar equipped aircraft of common configuration. The radar

equipped aircraft shall meet the requirements of the ‘Functional

Description, Undergraduate Naval Flight Officer (UNFO) Training

System,’ Attachment (1)... .’ (R4, tab 1 at 2-1) Paragraph 1.1, ‘Scope,’ of

Attachment (1) provides that 'The system consists of airborne training

services utilizing commercial aircraft, associated radar, an Air-to-Air

Intercept Radar Training Device, a Ground Radar Mapping Training

Device, all maintenance (aircraft and trainers), full logistics support and

required instructor pilot services.’ (R4, tab 1 at 146) ~

3. The contract 'SCHEDULE' contained at Section H-5 the 'Option To

Extend Services' clause prescribed by DAR 7-1903.22 (29 APR 1977).

This clause provided:

The Government may require the Contractor to continue to perform any

or all items of service under this contract within the limits stated in the

Schedule. The Contracting Officer may exercise this option, at any time

within the period specified in the Schedule, by giving written notice to

the Contractor. The rates set forth in the Schedule shall apply to any '

extension made pursuant to this option provision unless provision for

appropriate price adjustment has been made elsewhere in this contract.

(R4, tab | at 7-13)

4. Section H-6, 'Exercise Of Option,’ of the contract Schedule provided:

Pursuant to the ‘Option to Extend Services- Clause, the option for the

three option years will be exercised, if at all, in writing by a unilateral

modification to this contract issued by the Contracting Officer, Naval Air

Systems Command, not later than 1 October 1988.

(R4, tab | at 7-13)

5. The First Option Year (FY 1989) ran from | October 1988 to 30

September 1989. The Second Option Year (FY 1990) ran from 1 October

1989 to 30 September 1990. The Third Option Year (FY 1991) ran from

1 October 1990 to 30 September 1991. (R4, tab | at 5-9 to 5-11)

6. Section H-9 of the contract Schedule is entitled ‘Cancellation Ceiling.’

It established cancellation ceilings for program years two through five of

the five-year base period. It also established cancellation ceilings for

years two and three of the three-year option period. Under Section H-9, If

the Government exercised the three-year option, $29 million would be

the cancellation ceiling 'if second and following option years are

cancelled,’ and $26.5 million would be the cancellation ceiling ‘if third

option year is cancelled.' (R4, tab | at 7-17)

7. The notice requirement contained in Section H-8 of the contract,

entitled 'Multiyear procurement’ provides in part:

If the three year option is exercised, the date within which the

contracting officer . . . will notify the Contractor of the availability of

funds sufficient for performance of the requirements for the

Second Option Year (Fiscal Year 1990) is 1 October 1989.

Third Option Year (Fiscal Year 1991) is 1 October 1990.

(R4, tab | at 7-16)

8. The General Provisions of the contract incorporated by reference, the

‘Disputes’ clause (1980 JUN)\(DAR 7-103. 12(a)), and the ‘Availability Of

Funds’ clause (1962 SEP) (DAR 7-104.9] (a)), among others. The

‘Availability of Funds' clause provides:

Funds are not presently available for this procurement. The

Government's obligation hereunder is contingent upon the availability of

appropriated funds from which payment for the contract purposes can be

made. No legal liability on the part of the Government for payment of

any money shall arise unless and until funds are made available to the

Contracting Officer for this procurement and notice of such availability,

to be confirmed in writing by the Contracting Officer, is given to the

Contractor.

9. A ‘Financial Accounting Data Sheet’ -- DD Form No. 1140 -- is used

by the Navy to commit funds to a contract. On 30 September 1988, the

expiration date of the 0090 contract, a NAVAIR budget analyst executed

a Financial Data Sheet, post-dating it to | October 1988 with the proviso

that ‘EXECUTION OF THIS DOCUMENT IS CONTINGENT ON

CONGRESSIONAL PASSAGE OF THE FY 89 APPROPRIATION

ACT OR OTHER AUTHORITY.’ (R4, tab 7) The amount of funds cited

on the form was $22,576,253. The fund amount cited did not cover the

$29 million potential cancellation liability for the second and following

option years under Section H-9 of the contract Schedule.

10. In 1988, | October was a Saturday. On that day, the contracting

officer was told by one of her supervisors that the President had signed

the Department of Defense Appropriation Act, 1989 (Pub. L. 100-463,

102 Stat. 2270 (1988)).

11. Sometime during 1-October 1988, the contracting officer covered

over the budget analyst's proviso with white correction fluid and redrew

the whited-out vertical lines that had been on the Financial Accounting

Data Sheet.

12. Also on 1 October 1988, the contracting officer executed

Modification No. P00027 for the purpose of exercising the three-year

option pursuant to Section H-6 of the 0090 contract. Among the

documents attached to the modification was the whited-out Financial

Accounting Data Sheet. The documents showed that funds ($22,576,253)

were provided for the First Option Year (FY 1989) (R4, tab 2a).

13. At 6:22 p.m., 1 October 1988, the contracting officer by means of

facsimile transmitted to the attention of Cessna’s Vice President for

Finance, at Cessna's facility in Wichita, Kansas, documents described as

‘the modification exercising the three-year multiyear option and

providing funding for FY 89° (R4, tab 9).

14. October 1, 1988, being a Saturday, was not a normal business day for

Cessna (complaint par. 28). Cessna personnel responsible for the 0090

contract found at a telecopy machine at Cessna’s Wichita facility a

facsimile copy of Modification No. P00027, including a copy of the

Financial Accounting Data Sheet, shortly after the facility opened for

business on 3 October 1988.

15. By letter dated 7 October 1988, Cessna advised the contracting

officer that it did not consider that the Navy had validly exercised the

option (R4, tab 11).

16. The contracting officer responded to Cessna's 7 October 1988 letter

by letter dated 7 December 1988. The letter stated in substance that the

option had been effectively exercised and that the 0090 contract remained

in effect (R4, tab 12).

FY 1990 Funding

17. On 29 September 1989, the President signed into law Continuing

Appropriations, 1990, Pub. L. 101-100, 103 Stat. 638 (FY 1990

Continuing Resolution). This law appropriated funds to DoD for FY 1990

under a continuing resolution. Section 102 of the FY 1990 Continuing

Resolution provided that ‘appropriations and funds made available and

authority granted pursuant to this joint resolution shall be available

until..... (c) October 25, 1989... ." Pub. L. 101-100, 103 Stat. 640 (1989)

18. On 1 October 1989, the contracting officer telecopied to Cessna

Modification No. P00034. The modification stated that it provided funds

for the ‘Second Year (FY 1990) of the three year multiyear option

exercised by contract modification P00027 . . . .' Modification No.

P00034 was issued to notify Cessna of the availability of funds for

performance for the Second Option Year. The modification showed

$23,282,519 to have been obligated for contract line items for the Second

Option Year (FY 1990) (R4, tab 2h). It did not fund the Third Option -

Year (FY 1991), nor the $26.5 million cancellation charges for the Third

Option Year.

19. The Department of Defense Appropriations Act, 1990, was enacted

into law on 21 November 1989. Pub. L. 101-165, 103 Stat. 1112 (1989).

FY 1991 Funding

20. On 1 October 1990, the President signed into law Continuing

Appropriations, 1991, Pub. L. 101-403, 104 Stat. 867 (FY 199]

Continuing Resolution). Section 108 of this FY 199] Continuing

Resolution provided that ‘appropriations and funds made available and

authority granted pursuant to title I of this joint resolution shall be

available until . . . (c) October 5, 1990... .' Pub. L. 101-403, 104 Stat.

869.

21. On 1 October 1990, the contracting officer telecopied to Cessna

Modification No. P00038. The modification was ‘to fund the Third Year

(FY 1991) of the three year multiyear option exercised by contract

modification P00027.' Modification No. P00038 was issued to notify

Cessna of the availability of funds for performance for the Third Option

Year. The modification showed $23,866,204 to have been obligated for

contract line items for the Third Option Year (FY 1991). (R4, tab 21)

22. On 9 October 1990, the President signed into law Further Continuing

Appropriations, 1991, Pub. L. 101-412, 104 Stat. 894. Section 108 of this

second FY 1991 Continuing Resolution provided that ‘appropriations and

funds made available and authority granted pursuant to this joint

resolution shall be available until. . .. (c) October 19, 1990... .' Pub. L.

101-412, 104 Stat. 896.

23. The Department of Defense Appropriations Act, 1991, was enacted

into law on 5 November 1990. Pub. L. 101-511, 104 Stat. 1856.

Procedural Posture of the Appeal

24. Cessna initiated an action in the United States District Court for the

District of Kansas on 10 March 1989. The action sought declaratory

judgment under Section 10 of the Administrative Procedure Act, 5 U.S.C.

sec. 702. to the effect that the Navy's exercise of the option was in

violation of the Antideficiency Act, 31 U.S.C. secs. 1341-1342, the

Apportionment statutes, 31 U.S.C. secs. 1511-1519, and Section 8042 of

the DoD Appropriation Act, 1989. By Memorandum And Order of 13

August 1990, the District Court found that Cessna's claim was actually

one for money damages in an amount in excess of $10,000. The Court

denied the Government's motion to dismiss and ordered that the action be

transferred to the United States Claims Court. See Cessna Aircraft Co. v.

United States, 744 F. Supp. 260 (D. Kansas 1990).

25. Cessna submitted a certified claim in the amount of $29,054,615 to

the contracting officer on 8 April 1991. By letter dated 24 June 1991,

Cessna’s Chairman and Chief Executive Officer revised the claim to

$25.706,080, to [correct] an inadvertent error in the bid and development

expense rates used in the previously submitted price proposal . . . [and to

update) the pricing from the earlier submission.’ Cessna’s claim was

recertified as modified.

26. The contracting officer did not issue a decision within 60 days as

required by Section 6(c)(1) of the Contract Disputes Act, 41 U.S.C. sec.

605(c\ 1). Cessna appealed on the basis that its claim was deemed denied

pursuant to 41 U.S.C. sec. 605(c\5) by notice dated 10 July 1991. The

Board docketed the appeal on 11 July 1991. On 21 August 1991, the

Government moved to dismiss the appeal on the ground that no

contracting officer's decision had been issued. The Board denied the

Government's motion on 30 September 1991. Cessna Aircraft Co.,

ASBCA No. 43196, 92-1 BCA par. 24,425.

27. While the Government's motion to dismiss was pending, Cessna filed

on 5 September 1991, APPELLANT'S MOTION FOR PARTIAL

SUMMARY JUDGMENT and MEMORANDUM IN SUPPORT OF

APPELLANT'S MOTION FOR PARTIAL SUMMARY JUDGMENT

and 43 accompanying exhibits (henceforth to be referred to as MOTION

PAPERS 1). Over Cessna's objections, the Board granted two

Government requests for a time extension to file its opposition to

Cessna's motion. "RESPONDENT'S MEMORANDUM IN OPPOSITION

TO APPELLANT'S MOTION FOR PARTIAL SUMMARY

JUDGMENT AND IN SUPPORT OF RESPONDENT'S

CROSS-MOTION FOR PARTIAL SUMMARY JUDGMENT’

(henceforth MOTION PAPERS 2) dated 8 January 1992, was received at

the Board on 14 January 1992.

28. Thereafter, Cessna filed a reply to the Government's opposition and

cross- motion on 13 March 1992 (CESSNA'S REPLY TO THE NAVY'S

OPPOSITION TO CESSNA'S MOTION FOR SUMMARY

c™

te i et Re beth i

aoe ee

JUDGMENT, AND OPPOSITION TO THE NAVY'S CROSS-MOTION

FOR SUMMARY JUDGMENT with 78 exhibits) (henceforth MOTION

PAPERS 3). The Government's reply to Cessna's opposition to the

Government's Cross-Motion was filed on 11 May 1992

(RESPONDENT'S REPLY TO APPELLANT'S OPPOSITION TO THE

NAVY'S CROSS-MOTION FOR SUMMARY JUDGMENT)

(henceforth MOTION PAPERS 4).

29. The Government submitted its Rule 4 file by letter dated 10 January

1992. Its answer to Cessna's complaint was filed by letter dated 17

January 1992 (R4, tab 19). By letter dated 26 May 1992, the Board

granted Cessna leave to file a response to four defenses said to have been

raised for the first time in the Government's MOTION PAPERS 4.

Cessna's response, APPELLANT'S REPLY TO NAVY'S NEW

DEFENSES IN OPPOSITION TO CESSNA'S MOTION FOR PARTIAL

SUMMARY JUDGMENT (henceforth MOTION PAPERS 5), was

received by the Board on 17 July 1992.

30. Concomitantly with the filing of the aforementioned summary

judgment papers, the Government on 14 January 1992 filed its "MOTION

TO DISMISS FOR LACK OF JURISDICTION ALL COUNTS OF

APPELLANT'S COMPLAINT WHICH ALLEGE VIOLATIONS OF

CRIMINAL LAW.’ This was followed by Cessna's opposition

(CESSNA'S OPPOSITION TO NAVY'S MOTION TO DISMISS) filed

on 13 March 1992 and the Government's reply (REPLY TO

APPELLANT'S OPPOSITION TO RESPONDENT'S MOTION TO

DISMISS) filed on 12 May 1992. The Board issued its decision denying

the Navy's Motion to Dismiss on 20 October 1992. Cessna Aircraft Co..

ASBCA No. 43196, 93-_ BCA par. _.

31. By letter dated 11 January 1993, a month after oral argument, Cessna

forwarded ‘APPELLANT'S MOTION FOR LEAVE TO FILE AN

AMENDED COMPLAINT AND TO AMEND APPELLANT'S

MOTION FOR PARTIAL SUMMARY JUDGMENT and

‘MEMORANDUM IN FURTHER SUPPORT OF APPELLANT'S

MOTION FOR PARTIAL SUMMARY JUDGMENT (henceforth

MOTION PAPERS 6). The motion sought to (1) amend Count I of its

complaint and its partial summary judgment motion to ‘include the

allegation that the Navy violated the Antideficiency Act by obligating FY

1989 Navy Operations & Maintenance funds before such funds were

allocated to the Navy by the Secretary of Defense’ ( emphasis added) and

(2) ‘amend its Motion for Partial Summary Judgment to include a request

for an order granting summary judgment on Count XIII.' (MOTION

PAPERS 6 at 1-2) The Board granted Cessna’s motion and instructed the

Navy to respond by 26 February 1993.

Statutory Bases of Cessna's Motion for Partial Summary Judgment

32. Cessna's complaint contained 15 (1 to XV) counts. Eight of the 15

counts alleged violations of 31 U.S.C. sec. 1341 (Antideficiency Act) or

31 U.S.C. sec. 1517 (apportionment statute):

Count No. Statute Allegedly Violated

I 31 U.S.C. sec. 1517(aX1)

ll 31 U.S.C. sec. 1341(aX 1B)

ill 31 U.S.C. sec. 1517(a\(2)

IV 31 U.S.C. sec. 1517(a\{2)

IX 31 U.S.C. sec. 1341(aX 1 A) & (B)

xX 31 U.S.C. sec. 1517(a\{2)

XII 31 U.S.C. sec. 1341(aX 1 A) & (B)

XI 31 U.S.C. sec. 1517(aX{2)

33. 31 U.S.C. sec. 1341 (Limitations on expending and obligating

amounts) provides, in part:

(a1) An officer or employee of the United States Government . . . may

not-

(A) make or authorize an expenditure or obligation EXCEEDING an

amount available in an appropriation or fund for the expenditure or

obligation; or

(B) involve . . . [the United States] government in a contract or

obligation for the payment of money before an appropriation is made

unless authorized by law.

(Emphasis added)

31 U.S.C. sec. 1517 (Prohibited obligations and expenditures) provides

in part:

(a) An officer or employee of the United States Government . . . may

not make or authorize an expenditure or obligation EXCEEDING-

(1) an apportionment; or

(2) the amount permitted by regulations prescribed under section

1514(a) of this title.

(Emphasis added)

The Bases of Cessna’s Motion for Partial Summary Judgment

34. In Count I (Obligation Before Apportionment and Allocation},

Cessna alleges that the contracting officer violated 31 U.S.C. sec.

1517(aX1), DoD Directive 7200.1, and Navy Comptroller Manual

(NCM) pars. 073000 - 073002, because she issued Modification No.

P00027 obligating FY 1989 funds for the first year of the three-year

option period prior to apportionment and allocation of FY 1989 funds

(MOTION PAPERS | at 24-28).

35. In Count I] (Involvement in a Contract Before Appropriation],

Cessna alleges that the contracting officer violated 31 U.S.C. sec.

1341(aX1B) in exercising the option (by Modification No. P00027)

because she ‘involved the government in a contract for payment of money

in FY 1990 and 1991 [Second and Third Option Years] before

appropriations for those years had been made’ (MOTION PAPERS at

29-35).

36. In Count III [Falsified Funding Documents], Cessna alleges that the

contracting officer in ‘whiting-out’ the budget analyst's proviso on the

Financial Accounting Data Sheet was ‘deliberately falsifying an official

government document.’ In its Motion for Partial Summary Judgment,

Cessna suggested that the contracting officer might have violated 18

U.S.C. secs. 1001 and 1008 and ‘an array of other felony statutes

including 18 U.S.C. secs. 287, 471, 472, 495, 461, 648, 653, 666, 912.

1002, 1003, 1016, 1017, 1028, and 1031." (MOTION PAPERS, n.12 at

38) /1 Leaving aside the ‘array’ of criminal statutes Cessna alleges that the

contracting officer might have violated, the crux of Count III is that ‘The

option exercise was ineffective’ because ‘The altered Financial

Accounting Data Sheet was void and did not validly commit funds in

support of the purported option exercise’.

37. In Count IV [Cancellation Charges Exceeded Available Funds in FY

1989), Cessna alleges that the option was ineffectively exercised because

the modification (Modification No. P00027) exercising the option

violated the law (31 U.S.C. sec. 1517, 31 U.S.C. sec. 1514(a) and

implementing regulatio by committing funds for the contingent liability

for cancellation charges ($29 million) in excess of funds ($22,576,253)

authorized for FY 1989. (MOTION PAPERS | at 50-52)

38. In Count VII [Navy Failed to Notify Congress], Cessna alleges that

Section 8042 of the FY 1989 DoD Appropriation Act ‘required the Navy

to submit notice to Congress before extending or renewing for a term of

18 months or more any contract involving aircraft obtained through

‘lease, charter, or similar agreement.” Cessna alleges that the purported

option exercise (Modification No. P00027) was ‘unlawful, invalid, and of

no force or effect’ because the Navy ‘did not notify Congress of its

intention to extend for three years Contract No. 0090.’ (MOTION

PAPERS | at 41-50)

39. in Count VIII [Funding Notice for Second Option Year Was Late],

Cessna alleges that the Second Option Year of the 0090 contract was

automatically cancelled pursuant to DAR sec. 7-1903.33(d) because the

contracting officer did not issue a notice of funds availability for FY

1990 prior to the beginning of the fiscal year (MOTION PAPERS | at

10b

54-56).

40. In Count IX [Funding Notice for Second Option Year Was an

Obligation in Advance of Appropriated Funds), Cessna alleges that in

issuing the funding notice (Modification No. P00034) for the Second

Option Year, the contracting officer obligated funds ($23,282,519) in

advance of appropri- ations in violation of 31 U.S.C. sec. 1341(a)(1 (A)

& (B) because the Continuing Resolution (Pub. L. 101-100) for FY 1990

expressly stated that funds were available only until 25 October 1989

(finding 17; MOTION PAPERS | at 53-54).

41. In Count X [Cancellation Charges Exceeded Available Funds in FY

1990), Cessna alleges that the contracting officer's notice of funding

availability (Modification No. P00034 for $23,282,519) violated 31

U.S.C. sec. 1517 and implementing regulations because ‘it exposed the

government to a contingent liability of up to $26.5 million of cancellation

charges in the event the third option year was cancelled’ (MOTION

PAPERS | at 52).

42. In Count XI [Funding Notice for Third Option Year Was Late],

Cessna alleges that the Third Option Year of the 0090 contract was

automatically cancelled pursuant to DAR sec. 7-1903.33(d) because the

contracting officer did not issue a notice of funds availability for FY

1991 prior to the beginning of the fiscal year (MOTION PAPERS | at

54-56).

43. In Count XII [Funding Notice for Third Option Year Was an

Obligation in Advance of Appropriated Funds], Cessna alleges that in

issuing the funding notice (Modification No. P00038) for the Third

Option Year, the contracting officer obligated funds ($23,866,204) in

advance of appropria- tions in violation of 31 U.S.C. sec. 1341(a)(1 (A)

& (B) because the first Continuing Resolution for FY 1991 stated that

funds were available only until 5 October 1990, and the second

Continuing Resolution for FY 1991 stated that funds were available only

until 19 October 1990 (findings 20,22; MOTION PAPERS | at 53- 54).

The Navy's Cross Motion for Summary Judgment

44. The Navy opposed Cessna's motion and crossed for summary

judgment on al! 10 counts (1, II, 11], 1V, VII, VILL, EX, X, XI, XID) that

Cessna initially moved for summary judgment. In addition, the Navy

moved for summary judgment on Count XIII (MOTION PAPERS 2).

Cessna later amended its motion for partial summary judgment and

cross-moved for summary judgment of count XIII (MOTION PAPERS

6).

45. Count XIII involves the same issue as Count I. In Count XIII

[Funding Notice for Third Option Year Was in Advance of Apportioment

[sic] and Subdivision of Funds), Cessna alleges that the contracting

11b

officer's funding notice (Modification No. P00038) was issued ‘before FY

1991 appropriations were apportioned by OMB, allocated by DOD,

and/or suballocated by the Navy, in violation of 31 U.S.C. sec.

1511-1519 and regulations thereunder,’ and was therefore unlawful,

invalid and of no force or effect.

DECISION

Jurisdiction

In opposition to Cessna's Motion for Partial Summary Judgment, the

Navy contends that Cessna lacked standing to challenge matters relating

to the Navy's alleged 2 yon-compliance with what essentially are ‘funds

control statute[s].'- We view the Navy's standing challenge as going to

our jurisdiction to hear and decide matters relating to funding of

contracts. Cessna derives its right to bring its appeal before us by virtue

of its status as a Government contractor under the Contract Disputes Act.

41 U.S.C. secs. 601-613. That Act defines the term ‘contractor’ as ‘a party

to a Government contract other than the Government,’ and it applies ‘to

any express or Implied contract . . . entered into by an executive agency

for-...; (2) the procurement of services.’ 4] U.S.C. sec. 601(4) and sec.

602(a)(2).

There is no question of Cessna's status as a Government contractor. Nor

is there any question that the 0090 contract is a contract for the

procurement of services within the scope of 41 U.S.C. sec. 602(a)(2).

Furthermore, In accordance with the requirement of 41 U.S.C. sec.

605(c)(1), Cessna submitted a properly certified claim to the contracting

officer. The commencement of the appeal was authorized upon the

failure of the contracting officer to issue a decision in accordance with 4]

U.S.C. sec. 605(c)(5). Cessna Aircraft Co., ASBCA No. 43196, 92-1]

BCA par. 24,425.

As reflected in the contracting officer's decision. belatedly issued on 15

November 1991 (R4, tab 19), the parties’ dispute which gave rise to

Cessna's claim centered on whether the Navy effectively exercised the

three-year option and issued the funds availability notices for the Second

and Third Option Years. The right to exercise the option and the require-

ment to issue the funding notices stemmed from the terms of the 0090

contract. Under the CDA, we have jurisdiction ‘to decide any appeal from

a decision of a contracting officer (1) relative to a contract made by its

agency’ (emphasis added). 41 U.S.C. sec. 607(d). We conclude that this

appeal related to the 0090 contract made by the Navy. Hence, Cessna's

standing to bring this appeal and our jurisdiction to decide it are

grounded on the provisions of the CDA. Cessna Aircraft Co., ASBCA

No. 43196, 93-_ BCA par ___ ; See Ecee Inc. v. Federal Energy

12b

Regulatory Com'n, 645 F.2d at 339, 349-50 (Sth Cir. 1981).

Counts I & XIll

Additional Findings of Fact

Apportionment Statutes And Regulations Relied Upon By Cessna

46. 31 U.S.C. sec. 1512 (Apportionment and reserves) provides in part,

the following:

(a) Except as provided in this subchapter, an appropriation available for

obligation for a definite period shall be apportioned to prevent obligation

or expenditure at a rate that would indicate a necessity for a deficiency or

supplemental appropriation for the period.

47.31 U.S.C. sec. 1514 (Administrative division of apportionments)

provides in part, the following:

(a) . . . the head of each executive agency . . . shall prescribe by

regulation a system of administrative control not inconsistent with

accounting procedures prescribed under law. The system shall be

designed to-

(1) restrict obligations or expenditures from each appropriation io the

amount of apportionments or reapportionments of the appropriation; and

(2) enable the official or the head of the executive agency to fix

responsibility for an obligation or expenditure exceeding an

apportionment or reapportionment.

48. Pursuant to 31 U.S.C. sec. 1514(a), DoD issued DoD Directive No.

7200.1, 7 May 1984. This Directive applies to:

the Office of the Secretary of Defense, the Military Departments, the

Organization of the Joint Chiefs of Staff, the Defense Agencies and the

Uniformed Services University of the Health Sciences (hereafter referred

to collectively as ‘DoD Components’) and includes all civil and military

functions under the direct supervision of a DoD Component.

(MOTION PAPERS | at tab 38) For apportioned funds, a violation of Do

D Directive

7200.1 is a violation of 31 U.S.C. sec. 3/517. Since DoD Directive 7200.

| was

issued pursuant to 31 U.S.C. 1517, it has the force and effect of law. (See

DoD

Accounting Manual, October 1983, MOTION PAPERS 3, tab 46)

49. Paragraph G, 'APPORTIONMENTS,’' of DoD Directive 7200.1,

provides:

1. When appropriations or other funds are required to be apportioned to

a DoD Component under law, a request for the apportionment or

reapportionment shall be prepared and submitted through the ASD(C) to

the Director of OMB. The request shall be in such form and at such time

as the ASD(C) may prescribe to conform with the requirements of the

13b

Director of OMB (see reference (e)).

2. Obligations during any apportionment period must not EXCEED the

amount of the apportionment available for that period or of any

administrative subdivision of the apportionment.

(Emphasis added) (MOTION PAPERS 1, tab 38 at 5-2)

50. Paragraph K, ‘OBLIGATIONS AND EXPENDITURE,’ of DoD

Directive 7200.1, provides in part the following: _

2. Except as provided by subsection K.1.. above, no DoD official shall

authorize (such as, commit) or create any obligation, or make any

expenditure under any appropriation or fund EXCEEDING the

following:

a. The available amount of such appropriation or fund.

b. The available amount of an apportionment or reapportionment or

administrative subdivision thereof.

(Emphasis added) (MOTION PAPERS 1. tab 38 at 5-5 to 5-6)

51. The DoD Accounting Manual defines the terms ‘apportionment’ as

follows:

4. Apportionments and Reapportionments

a. An apportionment or reapportionment is a distribution made by OMB

of amounts available for obligation in an appropriation or fund account.

Except in certain instances, as specified in OMB Circular No. A-34...

apportionments and reapportionments by OMB are required before funds

may be obligated. The distribution of apportionments is part of an overall

financial plan for the year that is based on a forecast of obligations to be

incurred within an appropriation. (OMB's apportioned amount is in

response to a DoD request made on DD Form 1105. ‘Apportionment and

Reapportionment Schedule,’ . . .) Apportionments divide amounts

available for obligation by specific time periods (usually quarters),

activities, projects, objects, or by combinations of these categories.

b. The completed DD Form 1105 showing OMB's apportioned amounts

is normally the source document used to record apportionments and

reapportionments.

(MOTION PAPERS 3, tab 46 at 22-6)

52. Both parties have relied on provisions contained in the Navy

Comptroller Manual! (NCM). A brief discussion of where the NCM

stands in the hierarchy of funding laws and regulations is necessary. 3]

U.S.C. sec. 1514(a) requires executive agencies to prescribe a system of

administrative controls. DoD Directive 7200.1 was issued pursuant to 3]

U.S.C. sec. 1514 and approved by the Director of OMB. The DoD

Directive, in turn, required each DoD Component, including the Navy, ‘to

14b

establish and maintain adequate systems of accounting for positive

control of appropriations and other funds made available.’ The NCM is a

‘regulatory issuance’ of the Navy implementing the DoD Directive. The

DoD Directive is reproduced in its entirety, without change, as Appendix

A, Volume 2, of the NCM. (Supp. R4, tab 30 at encl. 5; see also oral arg.,

tr. 132-34; Navy letter and attachments of 22 January 1993 and MOTION

PAPERS 6). Cessna referred to Paragraph 023004 of the Navy

Comptroller Manual (NCM) which provides in part:

023004 APPORTIONMENTS AND ALLOCATIONS

1. APPORTIONMENT

a. Definition. An apportionment is a determination

by the Director of the Office of Management and Budget as to the

amount of obligations which may be incurred under an appropriation,

fund, or contract authorization during a specific period.

*=* *

c. Apportionments Are Binding. Except under certain circumstances as

prescribed by law, no agency shall authorize expenditures or involve the

Government in any contract or other obligations or commitment for the

future payment of money IN EXCESS of the amount currently available

therefor under the approved or revised apportionment.

(Emphasis added) (MOTION PAPERS 3, tab 48 at 3-2 to 3-3)

53. Referring to NCM par. 073002, Cessna asserts that ‘The NCM

establishes a sequential funding process whereby funds are first

apportioned, then allocated to the Secretary of Defense, and then

suballocated or allotted through the chain of command in the Navy.’

NCM par. 073002(2) provides:

073002 PROCEDURES FOR ESTABLISHING AVAILABILITY

*_* *

2. PURSUANT TO APPROPRIATION ENACTMENTS. On the basis

of the enacted Department of the Navy appropriations, the Treasury

Department prepares appropriation warrants which, after being

countersigned by the General Accounting Office, are forwarded to the

Department of the Navy as certification that the specified amounts are

available for obligation and expenditure. Fund availability is established

Lssemiitenieanniiniiaailaagiiiac ciel

be re,

ee ee ae ah

ncaa oped ainda:

Wadi adi A OAC A

15b

through compliance with procedures for submission, review, and Office

of Secretary of Defense (OSD)/Office of Management and Budget(OMB)

approval of apportionments and/or financial plans. In conjunction with

the apportionment procedure, the Office of the Assistant Secretary of

Defense (Comptroller) establishes the authorized level of obligation and

expenditure for each appropriation, as well as any controls or limitations

required below the appropriation level as a means of requiring

compliance with the terms of approved programs and budgets. In passing

obligational authority (as an allocation or as a limitation within operating

budget authority) to other echelons of command, the Comptroller creates

adminis- trative subdivisions of appropriated funds with clearly defined

responsibility for 31 U.S. Code 1517 violations i.e., for the creation of

any obligations or making of any expenditure IN EXCESS of an

apportionment or reapportionment, or of an amount specified in an

administrative subdivision thereof. The process of distributing financial

authority is continued through the chain of command in the form of

suballocations, allotments, operating budgets, or Operating targets.

Allotments, as well as the specified obligational authority within

operating budgets, constitute administrative subdivisions of appropriated

funds, subject to the sanctions of the Anti-Deficiency Act (31 U.S. Code

1518 and 1519) for the holders of allotments or operating budgets.

Operating targets (e.g., those established for individual ships by type

commanders) are administrative limitations of funds for which the legal

responsibility is retained by the grantor. _

(Emphasis added) (MOTION PAPERS 3, tab 39 at 3-3 to 3-4)

54. According to Cessna, the President has delegated the apportionment

authority to OMB by Executive Orders. /4 Cessna Says that ‘Section

44.10 of OMB Circular A-34 provides that only OMB has the authority

to apportion funds.’ OMB Circular A-34 reiterates the Statutory rule that

an obligation of funds in excess of an apportionment violates the

Antideficiency Act. (MOTION PAPERS | at 25 and tab 37) The Navy

has not disputed these assertions; we find them to be undisputed facts for

purposes of the motion before us.

55. Navy Operation and Maintenance (O & M) funds for FY 1989 were

appropriated by the Department of Defense Appropriations Act, 1989,

enacted into law on |! October 1988. Pub. L. 100-463, 102 Stat. 2270

(1988). Funds appropriated by this Act were not apportioned to DoD

until 20 October 1988. On that date, the Deputy Associate Director for

Nationa! Security, OMB, signed the DD Form 1105 -- "Apportionment

And Reapportionment Schedule ' (MOTION PAPERS at tab 17) We find

the foregoing facts to be undisputed.

Apportionment Statutes And Regulations Relied Upon by the Navy

16b

56. 31 U.S.C. sec. 1513 (Official controlling apportionments) provides

in part, as follows:

(b\1) The President shall apportion in writing an appropriation

available to an executive agency . . . that is required to be apportioned

under section 1512 of this title. The head of each executive agency to

which the appropriation is available shall submit to the President

information required for the apportionment in the form and the way and

at the time specified by the President. The information shall be submitted

not later than the later of the following:

(A) 40 days before the beginning of the fiscal year for which the

appropriation is available; or

(B) 15 DAYS AFTER THE DATE OF ENACTMENT OF THE LAW

BY WHICH THE APPROPRIATION IS MADE AVAILABLE.

(2) The President shall notify the head of the executive agency of the

action taken in apportioning the appropriation under paragraph (1) of this

subsection not later than the later of the following:

(A) 20 days before the beginning of the fiscal year for which the

appropriation is available; or

(B) 30 DAYS AFTER THE DATE OF ENACTMENT OF THE LAW

BY WHICH THE APPROPRIATION IS MADE AVAILABLE,

department of the United States Government shall apportion among the

major Organizational units of the department the maximum amount to be

expended by each unit during the fiscal year out of each contingent fund

appropriated for the entire year for the department. Each amount may be

changed during the fiscal year only by written direction of the head of the

department. The direction shall state the reasons for the change.

(Emphasis added) In this case the FY 1989 DoD Appropriations Act was

enacted

into law on | October 1988. Thus, 31 U.S.C. sec. 1513(b)(1)(B) and sec.

1513

(b)(2)(B) would apply. We find that OMB had until 31 October 1988, 30

days

after | October 1988, to apportion the funds appropriated by the FY 1989

DoD

Appropriations Act.

57. The Navy brings to our attention a paragraph in the NCM which

deals specifically with ‘AVAILABILITY OF FUNDS PRIOR TO

APPORTIONMENT:

022064 AVAILABILITY OF FUNDS PRIOR TO APPORTIONMENT

—

oe ee ee a ee oe

17b

AFTER THE BEGINNING OF THE FISCAL YEAR AND PRIOR TO

THE SPECIFIC ALLOCATION OF

FUNDS PURSUANT TO APPORTIONMENT to the head of the

responsible office, bureau,

command, and Headquarters U.S. Marine Corps by the Comptroller of

the Navy, the

head of the responsible office is authorized by the Comptroller of the

Navy to

suballocate funds and to issue allotments under any appropriation act of

such

fiscal year IN SUCH AMOUNTS AS WILL NOT EXCEED THE

AMOUNT CONTAINED IN the

appropriation warrant or the request for APPORTIONMENT AND

ALLOCATION SUBMITTED

TO THE COMPTROLLER OF THE NAVY. When an appropriation

warrant has not been

issued, the head of the responsible office is authorized by the Comptroller

the Navy to take the same actions under ANTICIPATED appropriations,

for which

he is responsible, WITHIN THE AUTHORIZATION CONTAINED IN

ANY CONTINUING

RESOLUTION ADOPTED BY THE CONGRESS PENDING THE

PASSAGE OF THE APPROPRIATION ACT

under which the appropriation warrant will be issued. Upon issuance of

the

approved budget activity allocations pursuant to apportionment, THE

LIMITATIONS

OF SUCH ALLOCATIONS WILL APPLY TO ALL

SUBALLOCATION AND ALLOTMENT ACTION TAKEN

PRIOR TO THE RECEIPT OF SUCH BUDGET ACTIVITY

ALLOCATIONS.

(Emphasis added) (MOTION PAPERS 2 at tab 2)

58. In opposition to Cessna's motion for summary judgment, and in

support of its cross-motion for summary judgment, the Navy furnished a

declaration from the head of the Resource Allocation Branch, Office of

the Comptroller, Department of the Navy (NAVCOMPT). This

individual had been employed by the Government in various Capacities

for over 32 years. He had been ‘the primary action officer for the

apportionment policy, procedures, and operations for the entire

Department of Defense (Army, Navy, Air Force, and Defense Agency

appropriations. )’ His declaration stated, inter alia:

18b

4. The Department of the Navy (DON) is required to submit

apportionment requests to the Office of the Secretary of Defense (OSD)

within five days of PASSAGE OF AN APPROPRIATIONS ACT (DOD

Budget Guidance Manual 7110-1-M, Part IV, Page 412-5 (attachment

1)). There are no restrictions placed upon DON from issuing quarterly

allocations prior to the beginning of the Fiscal Year so long as the

allocation documents contain an express prohibition against incurring

obligations prior to passage of an Appropriations Act or a Continuing

Resolution, whichever becomes applicable. Any such allocations are

subject to all provisions of such Act or Resolution.

5. Upon passage of an Appropriation Act, funds are immediately

available for obligation (NAVCOMPT Manual, paragraph 022064)...

The requirement for apportionment does not prohibit the obligation of

funds prior to the apportionment action. Apportionment is intended to

regulate the rate of obligations so as to prevent deficiency situations and

the need for supplemental appropriations, and therefore only becomes a

limitation upon approval. (In the absence of apportionment, the agency

receiving the appropriation is not subject to apportionment.) 31 U.S.C.,

section 1513(b), requires that apportionment requests be submitted to

OMB by OSD within 15 days after enactment of an appropriation. OMB

has 30 days after enactment to issue the apportionment. Thus until

apportionment is approved by OMB, no apportionment limitation exists.

Until apportionment by OMB, the amounts requested by DON in its

submittal to OSD are used as an internal limitation by NAVCOMPT. In

its apportionment request, DON includes anticipated obligations during

the initial days of the fiscal year, as well as amounts anticipated to be

required for the remainder of the first quarter of the fiscal year.

6. Once funds are apportioned by OMB, whether under an

Appropriations Act or a Continuing Resolution, the amounts apportioned,

lump sum or time-phased (as in O&MN), are adhered to on all allocation

documents issued by NAVCOMPT and the Chief of Naval Operations

(CNO).

7 . OSD does NOT allocate appropriated funds to the DON. Such funds

are available to the DON for obligation upon passage of enabling

appropriation authority. OSD, like OMB, may choose to limit or regulate

the rate of obligation and/or prohibit certain programs from being

executed for various administrative/legal reasons. Any such limitation(s)

are set forth in memoranda received from OSD which, in the case of

O&MN, are entitled: ‘Obligational Authority.’ As with the Apportionment

(DD-1105), upon receipt of higher level controls (OMB/OSD), these

controls are adhered to. Prior to receipt, there is no restriction on the

incurrence of obligations.

8. Continuing Resolutions appropriate an amount equivalent to the

pritigtsteeahne ik

19b

annual appropriation without regard to the time period actually covered

by the resolution. Thus, a continuing resolution does not limit the

government to entering into contracts valid only for the duration of the

resolution, but rather merely prohibits further new obligations after its

expiration. -

(Emphasis in original) (MOTION PAPERS 3, tab 2)

DECISION

Count I

On | October 1988, the President signed into law the DoD

Appropriations Act for FY 1989. On that day, the contracting officer for

the 0090 contract issued Modification No. P00027 exercising the 3-year

option under the contract. It is undisputed that the funds appropriated by

the Act were not apportioned by OMB until 20 October 1988 (finding

55).

Cessna moves for summary judgment on Count I, contending that the

contracting officer's exercise of the option was ineffective. Cessna alleges

that the contracting officer violated 31 U.S.C. sec. 151 7(aX(1) (an

apportionment statute) (see finding 33), DoD Directive 7200.1

(implementing directive issued pursuant to 31 U.S.C. sec. 1514(a)) (see

findings 47-49) and various paragraphs of the Navy Comptroller Manual

(see findings 52-53) because she issued Modification No. P00027

obligating FY 1989 funds for the first year of the 3- year option period

prior to apportionment and allocation of FY 1989 funds (MOTION

PAPERS | at 24-28).

The Navy opposed Cessna's motion and cro

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