legal forum
Assume at Your Own Risk
By jack horan and sandeep nandivada
On November 6, 2009,
the U.S. Air Force issued
a request for proposals
(RFP) for services in
support of the KC-135
Aircrew Training System
at 13 Air Force bases
around the world. The
RFP was for award of a
firm-fixed-price contract
with a three-month
“ramp-up period,” a oneyear base period, and
nine one-year option
periods.
The RFP incorporated by reference Federal
Acquisition Regulation (FAR) 52.222-41, “Service Contract Act,” which states, in part:
If this contract succeeds a contract subject
to the [Service Contract Act] under which
substantially the same services were
furnished in the same locality and service
employees were paid wages and fringe
benefits provided for in a collective bargaining agreement [(CBA)], in the absence of
the minimum wage attachment for this
contract setting forth such collectively
bargained wage rates and fringe benefits,
neither the contractor nor any subcontractor under this contract shall pay any
wages and fringe benefits provided for in
such [CBA], to which such employee would
have been entitled if employed under the
predecessor contract, including accrued
wages and fringe benefits and any prospective increases in wages and fringe benefits
provided for under such agreement.
The Service Contract Act (SCA),1 as implemented by FAR 22.1008-2, requires contracting officers to incorporate complete copies
of relevant predecessor CBAs into solicitations for successor contracts requiring
similar work.
On March 1 and April 1, 2010, Flight Safety
Services Corporation (FSSC), the incumbent
contractor for the training support services,
executed new CBAs that would be in effect
until December 31, 2013. The CBAs specified
that FSSC’s service employees were entitled
to participate in the company’s “Corporate
Benefit Program” and referenced four separate attachments that discussed seniority
dates, hours of work and pay, paid time off,
and unpaid time off.
On April 26, 2010, the contracting officer incorporated the CBAs into the RFP. However,
the CBAs did not provide the actual details
of FSSC’s Corporate Benefit Program, which
were contained in FSSC’s Benefits Guide
and not provided to offerors. Moreover, the
CBAs provided to offerors only included the
attachment discussing seniority dates. The
contracting officer later testified that he
had asked FSSC for the remaining attachments, but that FSSC refused to provide the
attachments because they were “company
policies that did not affect costs.”
service employee performing any of the
contract work (regardless of whether or
not such employee was employed under
the predecessor contract), less than the
78
Contract Management | April 2014
CAE USA, Inc., recognized that the CBAs
contained “very little information” on
the benefits CAE was required to provide
to service employees. The CBA explained
the number of holidays per calendar year
and the normal vacation schedule, but did
not detail the costs of health or disability
insurance or the 401(k) program. Despite
the absence of information on benefits, CAE
decided to submit its proposal in response
to the RFP using a fully burdened labor rate
of $4.25 per hour, which included profit
and all costs, including those associated
with fringe benefits. CAE did not ask the
government about the missing exhibits or
the incomplete information on benefits. On
August 31, 2010, the government awarded
the contract to CAE.
After award, CAE entered negotiations with
the labor union representing the service employees under contract and obtained access
to FSSC’s Benefits Guide. CAE discovered that
FSSC had provided more expansive fringe benefits under the predecessor contract to which
the current service employees remained
entitled. On January 7, 2011, CAE informed
the contracting officer that the government
had provided incomplete CBAs and CAE was
assessing the impact of the additional benefits it had to provide to its service employees.
The contracting officer responded that he was
aware of the missing attachments and that
the attachments were FSSC internal policies
not provided to offerors.
On June 28, 2011, CAE submitted a request
for equitable adjustment (REA) for $668,094
for the additional benefits not set forth
in the RFP that CAE had to provide to its
service employees to comply with the SCA.
On January 30, 2012, the contracting officer
issued a final decision denying CAE’s REA.
On February 23, 2012, CAE appealed to the
Armed Services Board of Contract Appeals
(ASBCA). The case is noted as CAE USA, Inc.,
ASBCA No. 58006, January 27, 2014.
legal forum
Using the superior knowledge doctrine as a
“template,” CAE argued that the government’s
failure to include the benefits information in
the RFP, as required by FAR 22.1008-2, entitled
CAE to receive the additional costs to provide
its employees these benefits. The elements of
proof of superior knowledge are as follows:
ƒƒ
A contractor undertakes to perform
without vital knowledge of a fact that
affects performance costs or duration,
ƒƒ
The government was aware the contractor had no knowledge of and had
no reason to obtain such information,
ƒƒ
The government argued that neither the
SCA nor the FAR imposed an affirmative
duty on a contracting officer to obtain
benefit information missing from a CBA
and provide it to offerors for the successor
contract. In the alternative, the government
argued that CAE was not entitled to incurred
costs because CAE failed to meet its duty to
inquire about the missing information.
The ASBCA used a two-step analysis:
ƒƒ
ƒƒ
Any contract specification supplied
misled the contractor or did not put it
on notice to inquire, and
The government failed to provide the
relevant information.2
Did the SCA and the FAR impose a
duty on the government to provide a
complete CBA to offerors, and
ƒƒ
If such a duty existed, did CAE’s decision to forego inquiring with the government about the missing information
and instead submit its proposal based
on undisclosed and unverified assumptions bar CAE from recovery?
CAE survived the first step in the ASBCA’s
analysis. The Board agreed that FAR
22.1008-2 required the contracting officer to
provide a complete CBA to CAE. Because the
CBAs incorporated into the solicitation were
missing relevant attachments related to
the incumbent contractor’s fringe benefits
program, the contracting officer did not
meet its obligation. This failure prevented
CAE from fully understanding the wage
and fringe benefits that it was required to
provide to service employees.
Contract Management | April 2014
79
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legal forum
Despite this obligation, CAE was not entitled
to recover the additional fringe benefits costs
it incurred because it did not survive the
second step in the ASBCA’s analysis. The Board
found that CAE elected not to inquire with the
contracting officer about the missing information knowing that the contracting officer had
provided incomplete information. Instead,
CAE assumed what benefits it was required
to provide and based its proposal on those
unverified assumptions. In short, CAE had a
duty to inquire—to ask the government about
the incomplete information—which it did not
satisfy. Using CAE’s superior knowledge “template,” CAE failed in the third element of proof:
It was on notice of the incomplete information,
but did not inquire.
The ASBCA stressed that CAE’s decision to
submit a proposal based on unverified assumptions, rather than inquire with the government
about the missing information, had consequences. Neither the SCA nor the FAR required
the government to indemnify CAE, or otherwise
guarantee the correctness of its assumptions
after CAE chose to submit its proposal based
on incomplete information and without first
inquiring with the government about the missing information. The ASBCA concluded that the
government could not be held responsible for
CAE’s knowing failure to verify that its proposal
assumptions were accurate.
liable if the contractor knows of the failure
but does not ask about it. CM
About the Authors
JACK HORAN, JD, is the general counsel for
NCMA. He also practices in the Government
The ASBCA’s decision in CAE USA Inc. is a
strong reminder to contractors of the duty
to inquire and the risk of relying on unverified assumptions about missing information. CAE’s knowing reliance on incomplete
information without inquiry to the government proved to be a costly mistake for two
reasons. First, CAE’s assumptions were
inaccurate and caused CAE to underprice
its contract. Second, CAE’s failure to inquire
forfeited CAE’s claim to recover its additional costs based on the incomplete information provided by the government in the
solicitation. Even when the government fails
to meet an obligation to provide required
information to offerors, the ASBCA (and
courts) often will not hold the government
Contracts and White Collar Crime practice
groups at McKenna Long & Aldridge, LLP.
SANDEEP NANDIVADA is a member of McKenna Long & Aldridge’s Government Contracts
practice group.
Send comments about this article to
[email protected].
Endnotes
1.
41 U.S.C. 6707 (2006).
2.
Derived from UniTech Services Group, Inc.,
ASBCA No. 56482, 12-2 BCA H 35,060 at
172,224 (quoting American Ship Bldg. Co. v.
United States, 654 F.2d 75 at 79 (Ct. Cl. 1981)).
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