EFTA00797875.pdf

American Tel. & Tel. Co. v. U.S., 177 F.3d 1368 (1999) system or subsystem exceeding $10 million unless certain conditions were Keyeite Yellow Flag - Negative Treatment Distinguished by Gengler v. U.S. ex rel. its Dept. of Defense and met, and (2) Department's failure to Navy. E.D.Cal.. August 24.2006 comply with statute's requirements did F.3d 1368 not render contract void ab initio. United States Court of Appeals, Federal Circuit. Questions answered and case remanded. AMERICAN TELEPHONE AND TELEGRAPH COMPANY, Rader, Circuit Judge, concurred in the and result and filed opinion in which Mayer, Lucent Technologies Inc., Chief Judge, and Lourie, Circuit Judge, Plaintiffs—Appellants, joined. v. UNITED STATES, Plager, Circuit Judge, dissented in part, Defendant/Cross—Appellant. concurred in part, and filed opinion. Nos. 95- 5153, 95- 5154. Opinion, 124 F.3d 1471, vacated. May 26, 1999. Synopsis West Headnotes (5) Contractor sued Government under Contract Disputes Act for recovery Ill Public Contracts of expenditures under research and development contract. The Court of • Compensation Federal Claims, John P. Wiese, J., 32 United States Fed.CI. 672, ruled that contract was • Compensation void and that quantum meruit relief Navy contract for was available, but certified questions development of ship-towed. for interlocutory appeal. The Court undersea surveillance system of Appeals originally affirmed, but, was for "major system or on rehearing en banc, the Court subsystem," for purposes of Appeals, Pauline Newman, Circuit of statute prohibiting Judge, held that: (1) Navy contracts for Department of Defense from development of ship-towed, undersea entering into fixed price surveillance system was for "major contracts for development of system or subsystem," for purposes major system or subsystem of statute prohibiting Department of exceeding $10 million unless Defense from entering into fixed price certain conditions were contracts for development of major met, notwithstanding either WESTLAW © 2019 Thomson Reuters. No claim to original U.S. Government Works. 1 EFTA00797875 American Tel. & Tel. Co. v. U.S., 177 F.3d 1368 (1999) agency's reliance on separate ab initio, as statute itself statute to define major system did not announce sanction as having $75 million floor of contract invalidity, and or fact that contract was contract had been fully funded over multiple years. performed. Act December 22, 10 U.S.C.A. § 2302(5); Act 1987, § 101(b), Sec. 8118, 101 December 22, 1987, § 101(b), Stat. 1329. Sec. 8118, 101 Stat. 1329. 24 Cases that cite this 9 Cases that cite this headnote headnote 121 Administrative Law and 141 Public Contracts Procedure offr. Unauthorized or Illegal e- Erroneous or Contracts unreasonable construction; United States conflict with statute o- Unauthorized or Illegal Although an agency's Contracts interpretation of a statute Invalidation of government it administers is indeed contract is not a necessary entitled to deference, agency consequence when a statute discretion does not extend or regulation has been to changing a clearly stated contravened, but must be dollar figure. considered in light of the statutory or regulatory Cases that cite this headnote purpose, with recognition of the strong policy of 131 Public Contracts supporting the integrity of 1— Compensation contracts made by and with United States the United States. Compensation 13 Cases that cite this Failure of Department headnote of Defense to comply with statute setting forth internal review and reporting 151 Contracts requirements for fixed price o- Nature and Essentials in contract for development of General major system or subsystem The invalidation of a contract exceeding $10 million did not after it has been fully render such contract void performed is not favored. WESTLAW 2019 Thomson Reuters. No claim to original U.S. Government Works. 2 EFTA00797876 American Tel. 8 Tel. Co. v. U.S., 177 F.3d 1368 (1999) amicus curiae Federal Circuit Bar 11 Cases that cite this Association. With him on the brief was headnote Clarence T. Kipps, Jr. Of counsel on the brief were L. James D'Agostino, Reed Smith Shaw & McClay, of McLean, Virginia; and George Hutchinson, Attorneys and Law Firms Executive Director, Federal Circuit Bar Association, of Washington, DC. *1369 C. Stanley Dees, McKenna & Cueno, L.L.P., of Washington, DC, Before MAYER, Chief Judge, argued for plaintiffs-appellants. With NEWMAN, PLAGER, LOURIE, him on the brief was J. Keith Burt. Of CLEVENGER, RADER, SCHALL, counsel on the brief were Thomas R. BRYSON, and GAJARSA, Circuit Suher, and Dean L. Grayson, Lucent Judges. * Technologies, Inc., of Washington, DC. Opinion Bryant G. Snee, Assistant Director, Commercial Litigation Branch, Civil Opinion for the court filed by Circuit Division, Department of Justice, Judge NEWMAN, in which Circuit of Washington, DC, argued for Judges CLEVENGER, SCHALL, defendant-cross appellants. With him BRYSON, and GAJARSA join. on the brief was David M. Cohen, Opinion concurring in result filed by Director. Of counsel on the brief were Circuit Judge RADER, in which Chief Robert D. Hogue, James H. Haag, Judge MAYER and Circuit Judge Attorneys, Office of General Counsel, LOURIE join. Opinion dissenting-in- Department of the Navy, of Arlington, part and concurring-in-part filed by Virginia. Circuit Judge PLAGER. Caryl A. Potter, III, Sonnenschein NEWMAN, Circuit Judge. Nath & Rosenthal, of Washington, DC, We took this appeal and cross-appeal for amicus curiae Electronic Industries en banc to reconsider the questions Alliance and Aerospace Industries of law presented, upon certification Association of America, Inc. With him for interlocutory appeal, concerning on the brief were Elizabeth A. Ferrell, the applicability of § 8118 of the of Washington, DC; Alan M. Posner, Defense Appropriations Act of 1987 to of Chicago, Illinois; and Roger K. a contract between the Department of Heidenreich, of St. Louis, Missouri. the Navy and the American Telephone John Lloyd Rice, Miller & Chevalier, and Telegraph Company. The Court of Chartered, of Washington, DC, for Federal Claims ruled that in view of the WESTLAW © 2019 Thomson Reuters. No claim to original U.S. Government Works. 3 EFTA00797877 American Tel. & Tel. Co. v. U.S., 177 F.3d 1368 (1999) failure of the Department of Defense to Diameter Array. The contract was comply with § 8118, the contract, which a "Total Package Procurement," had been performed, was void ab initio. requiring design of shipboard and We now hold that the contract was shore-based electronics, ship-winch not void, and remand to the Court of interface and tow cable, and an Federal Claims for further proceedings acoustic and electronic array some in accordance with this premise. 8,000 feet long, to meet the new Soviet submarine capabilities. The contract required research, development, and The Reduced Diameter Array Contract the delivery and testing of an This contract arose in Cold War engineering development model, at response to the new ultra-quiet a fixed ceiling price of $19,221,630, Soviet submarines, which were and included an option to the difficult to monitor using available Navy to acquire a second engineering technology and equipment. Effective development model at a fixed ceiling antisubmarine response requires that price of $3,510,253, and an additional hostile submarines be reliably detected, option to acquire three production- classified, located, and tracked. The level models at a fixed ceiling price of Navy, among its programs for this $8,475,466. purpose, employed an integrated undersea acoustic sonar system called The contract was successfully the Surveillance Towed—Array Sensor performed by AT & T over a period of System (SURTASS). In SURTASS a five years. With the price adjustments suitably equipped surface vessel tows an to which the Navy agreed during array of undersea detection equipment performance, the final fixed price through the ocean, while the equipment was approximately $34.5 million. AT collects and transmits appropriate data & T states that technical problems for processing on shipboard and for and unknowns arose throughout transmission to shore-based facilities. performance, and that its total cost was The President's Annual Report *1370 at least $91 million. The Navy rejected to the Congress for fiscal 1987, on AT & T's requests for restructuring the the topic of Antisubmarine Warfare contract and other relief, although AT Forces, referred to SURTASS as & T directed attention to § 8118 of "[o]ne of our most important ongoing the Defense Appropriations Act and programs in this area." Id. at 188. relevant Department of Defense policy directives concerning procurement of On December 31, 1987, after research and development for new competitive bidding, the Navy awarded technologies. AT & T a fixed price incentive fee contract for a subsystem of SURTASS, referred to as the Reduced WESTLAW © 2019 Thomson Reuters. No claim to original U.S. Government Works. 4 EFTA00797878 American Tel. 8 Tel. Co. v. U.S., 177 F.3d 1368 (1999) AT & T duly brought suit in the pursuant to unjust enrichment Court of Federal Claims under the principles. Contract Disputes Act. On cross motions for summary judgment the A panel of the Federal Circuit, by split issues arising from the enactment of decision, affirmed the ruling that the § 8118 were presented and argued. contract was void ab initio. The court The Court of Federal Claims ruled also held that no relief was available that § 8118 applied to this contract, to AT & T on any theory, except that it had not been complied with perhaps to replevin the goods that had by the Department of Defense, and been delivered to the Navy. Upon the that the contract consequently was void petitions of both sides we have reheard ab initio. Responding to AT & T's the matter en banc. I proposal that the appropriate remedy was to reform the contract into the cost-reimbursement form favored by Section 8118 ofthe Defense § 8118, the Court of Federal Claims Appropriations Act of1987 held that since there had never been a Concern about the use of fixed price valid contract it could not be reformed. contracts for research and development The court held, however, that AT & *1371 phases pervades defense T was entitled to compensation for procurement. In 1971 Department of its work on the basis of quantum Defense Directive (DODD) 5000.1 meruit, on a theory of implied-in- stated that "[i]t is not possible to fact contract. Before proceeding to determine the precise production cost determine quantum, the court certified of a new complex defense system for interlocutory appeal, in accordance before it is developed," and established with 28 U.S.C. § 1292(d)(2), the the policy of using cost-reimbursement following questions: price terms for procurement of research and development. The Directive (i) whether a contract executed in stated: "Fixed price contracts are violation of statutory restrictions on normally not appropriate for research the obligation and expenditure of and development phases." DODD appropriated funds may be declared 5000.1 & D.9.g (as amended, Sept. void from the start at the instance of 1, 1987). The Federal Acquisitions the performing contractor, and, if so, Regulations governing R & D contracts also embodied this policy. (ii) whether compensation for See, e.g., 48 C.F.R. § 35.006(c) benefits conferred upon the (1984-1998) ("Because the absence of Government (pursuant to the voided precise specifications and difficulties contract) can be predicated on an in estimating costs with accuracy implied-in-fact contract with the (resulting in a lack of confidence in cost amount of recovery to be determined estimates) normally precludes using WESTLAW © 2019 Thomson Reuters. No claim to original U.S. Government Works. 5 EFTA00797879 American Tel. & Tel. Co. v. U.S., 177 F.3d 1368 (1999) fixed-price contracting for R & D, the the cost-reimbursement type contract. use of cost-reimbursement contracts is Id. at 11. usually appropriate.") At ensuing hearings on the 1988 The record states that in the 1980s, Defense budget, concern was expressed despite these policy directives, the Navy about the continuing use of fixed returned to fixed price contracting price contracts for high-cost, high- for R & D as part of the risk development projects, as well Total Package Procurement concept. as concern for meeting congressional This in turn led to congressional oversight and allocation obligations investigations and hearings. An under this form of procurement. investigation conducted by the House Department of Defense Appropriations Appropriations Committee concluded for 1988: Hearings Before the that for the development phases Defense Subcomm. of the Comm. on of new technologies, the Navy's Appropriations, 100th Cong., 454- use of fixed price contracting 55 (1987). Legislatively implementing resulted in program delays, cost these concerns, the House included in overruns, contractor claims, non- the Defense Appropriations Act of 1987 participation, and litigation. See the provision that became § 8118: Surveys & Investigations Staff, Report to the Comm. on Appropriations, U.S. § 8118. None of the funds provided House of Representatives: Navy Fixed for the Department of Defense in this Price Contracting in the Research, Act may be obligated or expended for Development, Test and Evaluation fixed price-type contracts in excess of (RDT & E) Account, 100th Cong., $10,000,000 for the development of 1st Sess. (1987). The Report stated a major system or subsystem unless that: "Although Navy officials at the Under Secretary of Defense for the headquarters level have predicted Acquisition determines, in writing, immense success for the acquisition that program risk has been reduced policy, the opinions expressed by Navy to the extent that realistic pricing and other Service field procurement can occur, and that the contract type officials and technical experts indicated permits an equitable and sensible that [fixed price contracting] generally allocation of program risk between [has] proved unsuitable in an R the contracting parties: Provided, & D environment." Id. at ii. The That the Under Secretary may Report concluded that the nature not delegate this authority to any of the work in research and persons who hold a position in the exploratory development contracting Office of the Secretary of Defense "most frequently necessitates" use of below the level of Assistant Under Secretary of Defense: Provided further, That the Under Secretary WESTLAW © 2019 Thomson Reuters. No claim to original U.S. Government Works. 6 EFTA00797880 American Tel. & Tel. Co. v. U.S., 177 F.3d 1368 (1999) report to the Committees on Department, and required quarterly Appropriations of the Senate and reports of such awards to the House and House of Representatives in writing, Senate Appropriations Committees. on a quarterly basis, *1372 the The government argues first that '8118 contracts which have obligated did not apply to the Reduced Diameter funds under such a fixed price-type Array contract, thus eliminating any developmental contract. need for the Navy to have complied with the statute. The Court of Federal Pub.L. No. 100-202, § 8118, 101 Claims correctly held otherwise. Stat. 1329, 1329-84 (Dec. 22, 1987). The accompanying Conference Report Section 8118 by its terms applies to reiterated congressional concern that "fixed price-type contracts in excess the risks of failure and of cost of $10,000,000 for the development of uncertainties be allocated equitably a major system or subsystem." The between government and contractor, government argues that the Reduced and stressed the desire to "maintain Diameter Array is not a "major the government's credibility as a system," referring to a memorandum reliable business partner." H.R. Conf. issued six weeks after enactment of § Rep. No. 100-498 at 623 (Dec. 22, 8118 wherein the Under Secretary of 1987). Congress referred to the burden Defense defined "major system" for the of a fixed price contract on the purposes of § 8118 as a system having contractor when the miscalculation of a contract cost of over $75,000,000. In development cost may have been that a Memorandum for Service Acquisition of the government agency as well as Executives, Directors of the Defense the contractor, and to the reluctance Agencies issued February 11, 1988, of some highly qualified firms to enter Under Secretary of Defense for into such contracts. The Conference Acquisition Costello instructed that Report was unambiguous: "Fixed price "[t]he definition of major system at 10 contracts are normally not appropriate U.S.C. § 2302(5) is the definition of for research and development phases." that term for the purpose of [§ 8118]." Id. at 624. Thus Congress acted to This content was incorporated into adjust the risks of developing the SECNAV Instruction 4210.6A (April advanced technologies needed in the 13, 1988). service of national defense. 121 Section 2302(5) is a provision of chapter 137 of Subtitle A— Application of Section 8118 General Military Law, which as then [lj Section 8118 prohibited the award written defined "major system" as a of certain fixed price-type contracts system costing more than $75,000,000 unless the program risk was evaluated at a high level within the Defense WESTLAW © 2019 Thomson Reuters. No claim to original U.S. Government Works. EFTA00797881 American Tel. 8 Tel. Co. v. U.S., 177 F.3d 1368 (1999) for research, development, test, and Inc., 467 U.S. 837, 842-43, 104 S.Ct. evaluation: 2778, 81 L.Ed.2d 694 (1984) ("if the intent of Congress is clear, that is the 10 U.S.C. § 2302(5). The term "major end of the matter"). system" means a combination of elements that will function together In addition, the AT & T contract to produce the capabilities required itself, and the Space and Naval to fulfill a mission need. The elements Warfare Systems Command's guide may include hardware, equipment, to the SURTASS, described the software or any combination thereof, Reduced Diameter Array as a but excludes construction or other "subsystem." Subsystems were not improvements to real property. A defined in § 2305(5) and were not system shall be considered a major mentioned in the Memorandum of the system if (A) the Department of Under Secretary. However, subsystems Defense is responsible for the costing more than $10,000,000 were system and the total expenditures explicitly included in § 8118. Although for research, development, test, the government now argues that the and evaluation for the system Under Secretary's Memorandum and are estimated to be more than SECNAV Instr. 4210.6A really covered $75,000,000 (based on fiscal year a major system or a subsystem of 1980 constant dollars) or the eventual a major system, this interpretation is total expenditure for procurement of contrary to the plain text of these more than $300,000,000 (based on documents. It is apparent that the fiscal year 1980 constant dollars).... Memorandum was contrary to the statute, and in all events that it did not The government argues that the agency include subsystems such as the Reduced had discretion to define the § 8118 Diameter Array. "major system" in accordance with '2302(5), and thereby to place a The government also argues that not $75,000,000 floor on the systems to all of the funds expended under which § 8118 would apply. However, it the Reduced Diameter Array contract was not within the agency's discretion were appropriated in the corresponding to rewrite § 8118 to replace the statutory Appropriations Act, and thus that threshold of $10,000,000 with that the § 8118 prohibition on obligating of $75,000,000. Although an agency's or expending funds does not apply. *1373 interpretation of a statute Indeed, the contract was structured it administers is indeed entitled to for multi-year incremental funding. deference, agency discretion does not However, it is undisputed that the extend to changing a clearly stated starting research and development dollar figure. See Chevron, U.S.A., Inc. effort drew on several millions of v. Natural Resources Defense Council, WESTLAW © 2019 Thomson Reuters. No claim to original U.S. Government Works. 8 EFTA00797882 American Tel. 8 Tel. Co. v. U.S., 177 F.3d 1368 (1999) dollars of appropriated funds. The the Senate and House Appropriations multi-year funding does not excuse the Committees. Although the government Defense Department from compliance stresses that the contract was awarded with § 8118. only nine days after the enactment of § 8118, this does not excuse the failure of Moreover, contrary to the all compliance. government's argument, which is made but not strongly pressed, this case does not involve a funding deficiency or Consequences ofAgency implicate the Anti—Deficiency Act, 31 Noncompliance With § 8118 U.S.C. § 1341. See Hercules Inc. v. PI We turn to the certified question United States, 516 U.S. 417, 427, 116 of the consequences of this failure S.Ct. 981, 134 L.Ed.2d 47 (1996) ("The of compliance by the Department of Anti-Deficiency Act bars a federal Defense. AT & T states that § 8118 employee or agency from entering into was enacted at least in part for its a contract for future payment of money protection, and that the agency, by in advance of, or in excess of, an failing to obey the law, can not deprive existing appropriation."); see generally AT & T of the protection of the Ferris v. United States, 27 Ct.CI. law. AT & T argues that § 8118 542, 546 (1892) ("An appropriation is a "mandatory statute" restricting per se merely imposes limitations the agency's authority to obligate and upon the Government's own agents ... expend funds, and that the Navy's its insufficiency does not pay the direct contravention of § 8118 rendered Government's debts, nor cancel its the Reduced Diameter Array contract obligations, nor defeat the rights of void ab initio. other parties.") There is no issue in this case of lack of appropriated funds. The government responds that Congress chose and intended to enforce We affirm the determination of the § 8118 *1374 through its oversight Court of Federal Claims that § powers, and that AT & T can not 8118 applies to this contract. The benefit from whatever lapses may government does not dispute that have occurred within the Department the requirements of § 8118 were not of Defense in its compliance with met by the Department of Defense. congressional oversight legislation. The There is no assertion that the Under government stresses that § 8118 did not Secretary of Defense for Acquisitions provide that these fixed price contracts made or had made the program risk were prohibited, but only that the and pricing determinations required Defense Department must review the by § 8118, and no report of this risk and its allocation at a specified contract is stated to have been made to executive level, and must report to Congress on a quarterly basis. WESTLAW © 2019 Thomson Reuters. No claim to original U.S. Government Works. 9 EFTA00797883 American Tel. 8 Tel. Co. v. U.S., 177 F.3d 1368 (1999) history"). Congress simply tightened 14] Legislative intent and precedent the reporting provision, by moving both lead to the conclusion that the from after-the-fact quarterly reports AT & T contract was not void ab to before-award reports. Indeed, the initio as a consequence of the agency's House version of § 8118 had initially noncompliance. Invalidation of the required before-award reports, but contract is not a necessary consequence this was dropped in Conference in when a statute or regulation has been favor of the Senate version "to contravened, but must be considered reduce the appearance of congressional in light of the statutory or regulatory micromanagement." H.R. Conf. Rep. purpose, with recognition of the strong No. 100-498 at 623 (Dec. 22, 1987). policy of supporting the integrity of contracts made by and with the United The Conference Report stated that if States. In United States v. Mississippi Defense Department policy did not Valley Generating Co., 364 U.S. 520, become more uniform, "more severe 81 S.Ct. 294, 5 L.Ed.2d 268 (1961) the restrictions" would be imposed. Id. This Court explained that when a statute remark carries no hint of, and indeed "does not specifically provide for the belies, an interpretation that § 8118 was invalidation of contracts which are intended, upon enactment, to invalidate made in violation of [its provisions]" any contract made without meeting the court shall inquire "whether its internal review and reporting the sanction of nonenforcement is requirements, for such a "restriction" consistent with and essential to would already be extremely "severe." effectuating the public policy embodied The statutory shift to before-award in [the statute]." Id. at 563, 81 reports in succeeding years would be a S.Ct. 294. Thus the policy underlying trivial discipline indeed, if meanwhile the enactment must be considered all of the fixed price contracts within the in determining the remedy for its statutory scope, although in the process violation, when the statute itself does of performance, or as in this case fully not announce the sanction of contract performed, were void ab initio. invalidity. Only a few months after enactment The policy embodied in § 8118 of § 8118 the House Appropriations is elucidated in the congressional Committee reported that the response when § 8118 did not receive "enforcement of existing policy in this full compliance from the Department of area has not yet been demonstrated," Defense. See Alabama Rural Fire Ins. H.R.Rep. No. 100-681 at 147 (June 10, Co. v. United States, 215 Ct.C1. 442, 572 1988), and recommended a pre-award F.2d 727, 733 (1978) ("illegality may reporting requirement (which was be proved with reference to legislative included in the enactment for the next WESTLAW © 2019 Thomson Reuters. No claim to original U.S. Government Works. 10 EFTA00797884 American Tel. & Tel. Co. v. U.S., 177 F.3d 1368 (1999) fiscal year). The Senate Armed Services negate any reasonable inference that Committee, considering this renewal, Congress intended simply to render stated explicitly that noncompliance void ab initio, even after full was not intended to be "the basis for performance, any fixed price contract litigating the propriety of an otherwise for which the Under Secretary's review valid contract": of risk allocation and the report to the Committees were omitted. Congress The committee recognizes that there can not have intended to charge are circumstances in which fixed- the contracting partner with adverse price development contracts are consequences depending on whether appropriate (e.g., when costs and the Defense Department carried out the foreseeable program risks can be internal responsibilities and filed the reasonably anticipated), and the reports that Congress required. committee expects the Department to establish clear guidelines under this Nor is it the judicial role to section for use of such contracts. discipline the agency's noncompliance with the supervisory and reporting *1375 It is the intent of the instructions of congressional oversight. committee that this section be See Longshore v. United States, applied in a manner that best serves 77 F.3d 440, 443 (Fed.Cir.1996) the government's interests in the long ("Congress has undoubted capacity to term health of the defense industry, oversee the performance of Executive and that this section not be used as Branch agencies, consistent with its the basisfor litigating the propriety of constitutional authority. It is not for an otherwise valid contract. Nothing this court to instruct Congress on how in this section shall be construed to oversee and manage its creations."); to affect the requirements of section E. Walters & Co. v. United States, 217 8118 of the Department of Defense Ct.CI. 254, 576 F.2d 362, 367 (1978) Appropriations Act, 1988. ("The fact that a procurement practice (Emphasis added.) S.Rep. No. 100- is prohibited does not necessarily mean 326, 100th Cong., 2d Sess. at 105 that it is therefore actionable. The (May 4, 1988). This explicit statement discipline to be administered in such of intent weighs heavily against cases is a responsibility of the cognizant judicial invalidation of "an otherwise procurement officials within the agency valid contract," for the clearly stated [and not] by this court"); cf. National congressional purpose is contrary. Treasury Employees Union v. Campbell, 654 F.2d 784, 794 (D.C.Cir.1981) These congressional responses, made (by statutory requirement that the with knowledge of the agency's Comptroller General report on certain imperfect compliance with § 8118, expenditures "Congress itself is in a WESTLAW © 2019 Thomson Reuters. No claim to original U.S. Government Works. 11 EFTA00797885 American Tel. 8 Tel. Co. v. U.S., 177 F.3d 1368 (1999) position to monitor and enforce its Schoenbrod v. United States, 187 Ct.CI. spending limitations. It is not for 627, 410 F.2d 400, 403-04 (1969). We us to question the effectiveness of take incidental note that the case at existing remedies and infer additional bar also involved a disappointed bidder remedies.") raising post-award objections, *1376 and that none of the objections were Both the DoD administration of § based on § 8118. 8118, and the congressional response to this administration, make clear In Harbor Gateway Commercial that Congress did not intend that Property Owners' Ass'n v. United States this enactment would terminate fully Environmental Protection Agency, 167 performed contracts because of this F.3d 602 (D.C.Cir.1999), a case stressed flawed compliance. in the dissenting opinion hereto, the court voided an EPA action because the 151 Precedent reinforces our conclusion Governor had not signed the request that the Reduced Diameter Array as the statute required. However, contract is not void ab initio. The there was no issue of performance, invalidation of a contract after it has or reliance, or any other contractual been fully performed is not favored. element. It is not before us to decide Precedent shows that those contracts whether either party to the Reduced that have been nullified, based on a Diameter Array contract could have failure to meet a statutory or regulatory voided the contract early in its life requirement, are contracts that have and without penalty; the contract was not been substantially performed. E.g., performed for over five years, with no Alabama Rural Fire Ins. Co. v. United record suggestion from either party that States, 215 Ct.CI. 442, 572 F.2d 727, because of § 8118 there was no contract. 733-34 (1978). In Prestex, Inc. v. United States, 162 Ct.CI. 620, 320 F.2d Judicial reluctance to annul performed 367, 374-75 (1963), the court held a contracts when the government did not contract invalid, and refused to allow comply with a statutory or regulatory any recovery because no performance requirement was explained by the Court had occurred. It is not surprising that of Claims in John Reiner & Co. v. much of the litigation raising issues of United States, 163 Ct.CI. 381, 325 F.2d violation of statute or regulation at the 438, 440 (1963), stating that "the court inception of government contracts has should ordinarily impose the binding arisen in the bid protest context, where stamp of nullity only when the illegality the asserted illegality has been explored is plain." In Reiner the court recognized before substantial performance has the "dilemma" of a contractor who occurred. E.g., CACI, Inc. v. Stone, becomes aware, while deep in the 990 F.2d 1233, 1235 (Fed.Cir.1993); performance of a contract, of a possible WESTLAW © 2019 Thomson Reuters. No claim to original U.S. Government Works. 12 EFTA00797886 American Tel. & Tel. Co. v. U.S., 177 F.3d 1368 (1999) procurement illegality he did not cause: (1978) the court sustained a contract the contractor must either continue that was awarded after the contracting to perform a contract of uncertain officer had negligently failed to meet validity, or discontinue performance a regulatory responsibility; the court and risk severe penalties if a court later held that the non-compliance with disagrees with his assessment of the regulation was "a matter for internal illegality. resolution" and "did not render the resultant contract a nullity." In Clark When a contract or a provision v. United States, 95 U.S. 539, 542, 24 thereof is in violation of law but L.Ed. 518 (1877) the Court held a parol has been fully performed, the courts contract void for violation of the statute have variously sustained the contract, of frauds, but allowed recovery on an reformed it to correct the illegal implied contract theory. term, or allowed recovery under an implied contract theory; the courts The entirety of precedent strongly have not, however, simply declared the supports our conclusion that the contract void ab initio. For example, Reduced Diameter Array contract in LaBarge Products v. West, 46 is not void ab initio. Precedent F.3d 1547, 1552-53 (Fed.Cir.1995) does not favor the invalidation, there was an illegal disclosure by based on governmental noncompliance the government during bidding; this with internal review and reporting court noted that the contract had procedures, of a contract that has been been substantially performed and held fully performed by either contracting that a valid contract existed despite party. 2 the violation. In Beta Systems, Inc. v. United States, 838 F.2d 1179, 1185- *1377 Although the parties discuss 86 (Fed.Cir.1988) the court allowed possible remedies, the issue of what reformation of the contract price term relief may be available to AT & T to correct a regulatory violation, stating is not before us, for the Court of that "[t]he risk of unintentional failure Federal Claims did not consider AT of a contract term to comply with a & T's claims on the premise that the legal requirement does not fall solely underlying contract was not void. We on the contractor." In Urban Data have not considered this issue, and Systems, Inc. v. United States, 699 F.2d express no view thereon. 1147, 1154 (Fed.Cir.1983) the court held that a contract price term that was contrary to law did not invalidate Answers to the Certified Questions the fully performed contract. In Trilon For the reasons we have discussed, we Educational Corp. v. United States, conclude that the agency's failure to 217 Ct.C1. 266, 578 F.2d 1356, 1360 comply with the obligations of § 8118 WESTLAW © 2019 Thomson Reuters. No claim to original U.S. Government Works. 13 EFTA00797887 American Tel. & Tel. Co. v. U.S., 177 F.3d 1368 (1999) did not render the Reduced Diameter price-type contracts in Array contract void ab initio. Any excess of $10,000,000 failure by the Department of Defense in for the development its internal compliance with § 8118 can of a major system or not be invoked, particularly after full subs