Wednesday, April 20, 2016

Cannot Agree to Do Something and then Fail to Perform Accordingly

In February 2014, DLA (Defense Logistics Agency) awarded a contract to Third Coast Fresh Distribution LLC (TCF) to deliver fresh fruits and vegetables in the Dallas, TX area. The contract was a small business set-aside and contained a "non-manufacturer" clause which required the contractor to take ownership or possession of the items with its personnel, equipment or facilities in a manner consistent with industry practice.

After contract award, an unsuccessful bidder protested arguing that TCF did not qualify as a small business entitled to a set-aside contract because of its affiliation with other entities. SBA denied the size protest and also found that TCF complied with the non-manufacturer rule because it would take ownership and possession of the produce from the growers at its 65,000 square foot warehouse, store it, and deliver the produce itself.

During the first month of performance, the contracting officer became aware that a different company, Brothers Produce, was making deliveries under the contract. When confronted with that observation, TCF admitted that it was using Brothers Produce as a subcontractor to make deliveries. The contracting officer then asked the SBA for another size-determination based on the new facts. This time, the SBA opined that TCF was not a small business because it violated a specific contract requirement, namely the non-manufacturer rule.

After receiving the updated SBA size-determination, the contracting officer terminated the contract for cause, stating that TCF had failed to perform in the manner it represented to both the SBA and the contracting officer. TCF appealed the termination for cause to the  ASBCA (Armed Services Board of Contract Appeals) asking for the termination to be converted to a Termination for Convenience and for additional contract costs incurred up to the date of wrongful termination.

The ASBCA denied the appeal. The ASBCA stated that the clear purpose of the non-manufacturer rule is to prevent brokerage-type arrangements whereby small 'front' organizations are set up to bid on government contract, but furnish the supplies of a large concern. It would be senseless if contractors could merely say they will comply with the non-manufacturer rule at the time of proposal, but not have to perform accordingly. The undisputed facts demonstrate that TCF did not comply with a condition and performance requirement of the contract.

You can read the entire ASBCA case here.

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