Gould Inc. v. United States

In the United States Court of Federal Claims

Case No. 95-88C

(Filed: July 8, 2005)

TO BE PUBLISHED

Thomas M. Abbott, Los Angeles, CA, for Plaintiff.

David B. Stinson, with whom were Robert D. McCallum, Jr., David M. Cohen, and Bryant G. Snee, Department of Justice, Washington, D.C., for Defendant. Brad Johnson, Space and Naval Warfare Systems Command, San Diego, CA, Of Counsel. John M. Bergen, Law Clerk.

BASKIR, Judge.

Plaintiff, Gould, Inc., is a defense contractor which agreed to produce “Bancroft” radios for the U.S. Navy pursuant to a firm fixed-price multiyear contract. It seeks judgment as a matter of law on Count I of its Complaint, alleging the violation by the Navy of both statutory and regulatory directives concerning the use of multiyear contracts for Department of Defense (DoD) procurements. The Defendant filed a cross-motion for summary judgment. Because we find that the statute and its implementing regulations were intended to benefit the United States, as opposed to the private contractor, we conclude that any violation is not actionable by Plaintiff. We, therefore, deny Plaintiff’s motion and grant the Defendant’s cross-motion.

A. Prior Decisions

This government contract case was filed in 1988. It was first dismissed on January 16, 1990, by Judge Rader, while sitting on this Court’s predecessor, the Claims Court, for failure to state a claim upon which relief can be granted. Gould v. United States, 19 Cl. Ct. 257 (1990) (Gould I). The U.S. Court of Appeals for the Federal Circuit vacated the decision. Gould v. United States, 935 F.2d 1271 (Fed. Cir. 1991) (Gould II). On remand, the case was assigned to Judge Diane Sypolt (then Weinstein); Judge Rader had since been appointed to the Court of Appeals. Judge Sypolt (Weinstein) again dismissed Plaintiff’s claims. In an opinion dated October 29, 1993, she ruled that Gould’s claim that the Government entered into an illegal contract defeated subject matter jurisdiction because the Complaint then necessarily relied upon an implied-in-law contract. Gould v. United States, 29 Fed. Cl. 758 (1993) (Gould III). Once again, the Court of Appeals vacated this decision in an opinion issued on February 7, 1996. Gould v. United States, 67 F.3d 925 (Fed. Cir. 1995) (Gould IV). Soon thereafter, the Government filed a counterclaim and special plea in fraud.

B. Pending Motions

A lengthy discovery period, along with a temporary stay, dragged this case into 2002. Finally, dispositive motions were briefed with Plaintiff’s motion to dismiss Defendant’s counterclaim pled in the alternative as a motion for summary judgment. Gould filed another dispositive motion, requesting partial summary judgment in its favor on Count I. This motion was met with a cross-motion for summary judgment by the Government. This is the matter we take up today.

With the Defendant’s counterclaims and Plaintiff’s first count still unresolved, the Government filed a motion for partial summary judgment on the allegations contained in Counts II and III. Once again, the opposing side, this time the Plaintiff, filed cross-motions in response. These motions are pending.

C. Litigation Schedule

This case was transferred from Judge Sypolt’s docket to the undersigned in December 2004. On February 18, 2005, the Court held a status conference to establish priorities for the pending matters and arrive at a schedule for disposing of all motions. Plaintiff and Defendant agreed that the Court should first address the cross-motions for summary judgment on Count I – Plaintiff’s “illegal contract” claim. The parties submitted a Consolidated Statement of Uncontroverted Facts (CSUF), as required by this Court’s Special Procedures Order. The Court heard oral arguments on the matter on June 21, 2005. Below, we discuss the illegal contract argument in detail. First, however, we find it helpful to briefly review the background of the procurement and the difficulties encountered in performance, which resulted in Gould’s request for reformation of the contract. Readers are referred to the previous opinions, Gould I-IV, for additional background. Although we believe the following description is generally undisputed, we note that with one possible exception the motions before us involve statutory construction and are not fact-driven.

A. The Bancroft Radio Procurement

The contract at issue arises from a U.S. Navy procurement of radios intended for use by the Marine Corps. The Marine Corps requested that the Navy procure a “build to print” design of a previous defense contract – the Bancroft radio, a model produced for the U.S. Army by contractor Cincinnati Electronics. Because of production delays and modifications to this Army contract – awarded in 1978 -- the Bancroft radio had not yet stood the test of time when, in early 1980, Assistant Secretary of Defense for Research and Engineering Gerald Dinneen first directed the Navy to initiate a three-year production contract. CSUF 1-3. Ultimately, the Army opted not to use the radio at all. CSUF 5. At least as late as January 1982, the Marines persisted in the request for a design identical to the Cincinnati Electronics product. CSUF 4-5.

During the same time period in which the Navy was engaged in this procurement activity, the DoD and Congress had been considering various initiatives aimed at increasing multiyear contracting. In May 1981, Deputy Secretary of Defense Frank Carlucci issued a policy memorandum listing six criteria to be considered by appropriate agency personnel prior to entering into multiyear contracts: Benefit to the Government; stability of requirement; stability of funding; stability of configuration; degree of cost confidence; and degree of confidence in contractor capability. CSUF 6. Essentially, the policy sought to take advantage of “economies of scale” via multiyear contracts provided those advantages are “balanced against risks from unstable operational, technical, design, or quantity requirements.” CSUF 6. Congress took up these issues in June 1981, with hearings in which the Secretary of Defense justified the expanded use of multiyear defense procurements, under the policy outlined in the Carlucci Memorandum. CSUF 7.

These initiatives were not universally supported. However, the end result was the passage on December 1, 1981, of the 1982 Defense Authorization Act, Public Law 97-86. The Act included section 909 amending 10 U.S.C. § 2306, the statutory provision detailing the types of contracts into which the Armed Services could enter, to include multiyear contracts. Section 909 states Congressional findings, removes geographic limitations, provides outlines of implementing regulations, and increases the dollar amount of permissible cancellation clauses. It also added a new subsection, Section 2306 (h)(1)(A)-(E), requiring the head of an agency, statutorily defined as Assistant Secretary or higher, 10 U.S.C. § 2302, to make certain findings prior to pursuing multiyear acquisitions. See 10 U.S.C. § 2306(h)(1)(A)-(E). Although these provisions are now codified at 10 U.S.C. § 2306b(a)(1)-(6), we shall continue to cite the 1982 edition of the United States Code, as the parties have done in their papers. In particular, the head of the agency, or a properly delegated official – in the case of a Naval procurement, for instance, responsibility has been delegated down to the heads of the respective contracting activity, see CSUF 14-17 – must first make separate findings relating to such things as funding and requirements. One required finding – stability of design – lies at the heart of Plaintiff’s case. See § 2306(h)(1)(D). The implementing regulations supplement the statute in great detail. Among other things, they restrict multiyear contracts to fixed-price contracts and require the determinations to be in writing. Defense Acquisition Regulation (DAR) § 1-332.1(d)(4)(iv). While the parties agree that there is no discrete post-legislation written finding, the United States contends the Navy “substantially” complied with the statute. We address the conflicting views of the parties on this issue in our discussion below. As to the limitation of multiyear contracts to fixed-price contracts, the parties have not addressed the significance, if any, of this provision.

In the end, in August 1982, the Navy determined to issue performance specifications rather than rely on the design specifications of a build-to-print procurement. The reasons for this decision are touched upon summarily in the briefing and CSUF, and they are not pertinent to our discussion here. See, e.g., CSUF 25-27. What is important for our purposes is that the decision to abandon the build-to-print strategy was a turning point with important legal consequences. No longer was the Navy seeking a procurement based on design specifications with its risk allocation to the Government. See Stuyvesant Dredging Co. v. United States, 834 F.2d 1576, 1582 (Fed. Cir. 1987) (Spearin doctrine warranty attaches to design specifications, but does not protect a contractor in complying with performance specifications); see also Trans Metro v. United States, Case No. 01-533C (Fed. Cl. Mar. 7, 2005) (unpub.) (Applies standards for distinguishing between design specifications and performance specifications.)

The Navy's request for proposals (RFP) contained detailed performance specifications. It also included design specifications and drawings for the version of the radio previously developed for the Army which were labeled "for planning purposes only." CSUF 27. Gould contends that the required statutory finding of design stability constitutes a guarantee, and precludes any performance specifications. Thus the Bancroft contract, in Plaintiff’s view, was a per se violation of the statute.

There is no statutory definition of “stable design” and the parties’ definitions offered at oral argument differed greatly. In any event, Plaintiff suggests the Government’s admissions demonstrate there was no stable design. See CSUF 28 (Plaintiff’s Objection). Although this issue may be critical to other motions before us, Count I does not require us to look at the substance of the contract requirements. Compliance with the multiyear statute involves a much narrower question than whether a stable design existed.

B. Gould’s Performance and Equitable Reformation Claim

On October 3, 1983, the Navy awarded Gould a five-year contract to build the Bancroft-type tactical radios at a fixed price of $44,778,779.00. Soon thereafter, the Plaintiff apparently encountered difficulties in performing. Gould asserts that it attempted to redesign the Army Bancroft radio to satisfy the Navy's new performance requirements, but the company was unable to do so. Consequently, Gould performed additional design work, which it contends had not been contemplated or reflected in its bid, in an effort to meet the Navy's specifications. According to the Plaintiff, a simple upgrade of the Army model proved inadequate. Instead a complete redesign of the Army model was necessary. The Government maintains, however, that neither of the contracting parties anticipated that a simple redesign would suffice. The Navy emphasized the fact that its performance specifications were more demanding than those of the Army Bancroft radio, and Gould accepted the contract at the fixed-price offered. The Government also maintained that the company was using this opportunity to develop a radio with broader appeal to other prospective customers, and that this explains much if not all of its added research and development effort. In this respect, the Government argues, Plaintiff cannot establish injury, even assuming actionable statutory violations.

Still unable to perfect the radio, in December 1986, Gould submitted a certified claim to the contracting authority requesting "equitable reformation and upward adjustment in the price of [the] contract." In support of its claim, Gould cited unanticipated, increased recurring costs resulting from achieving a much more complex "stable design" than envisioned. Gould also claimed that it was "entitled to equitable relief on other, independent grounds based on [the Government's] withholding of information and/or mutual mistake." The claim concluded with a pricing section which requested money damages in the amount of $57,545,719 for "excess development costs plus increased recurring costs."

In support of the requested relief, the claim asserted:

•that the Navy violated 10 U.S.C. § 2306(h)(1) and other regulatory provisions by entering into a multiyear contract in the absence of a stable design for the item to be procured;

•that prior to the award of the contract the Navy withheld information that would have permitted bidders to accurately estimate "the degree of design effort and risk involved in meeting the Navy's performance specification;" and

•that there was a mutual mistake on the part of both Gould and the Navy regarding a basic assumption of the contract, because each party believed "that only minimal design and development effort would be required."

The contracting officer denied Gould’s claim in February 1988. In the interim between the submission of the claim and its denial, the Navy terminated the contract for default pursuant to an agreement with Gould preserving its present claims.

Plaintiff filed its Complaint in this Court on July 20, 1988, citing these same theories of relief as Counts I, II, and III, respectively. Gould has asked for equitable reformation of the contract, or in the alternative, compensatory damages in the amount of $36 million.

We apply the well-known standards for resolving summary judgment motions.

Summary judgment is appropriate when there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law. RCFC 56(c). A material fact is one that would affect the outcome of the motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). To set up a factual issue, the party opposing summary judgment “must proffer countering evidence sufficient to create a genuine factual dispute.” Sweats Fashions, Inc. v. Pannill Knitting Co., 833 F.2d 1560, 1562 (Fed. Cir. 1987).

When we decided to address Count I, the so-called “illegal contract” argument, the parties seemed to agree that this claim involves no factual disputes. The April 15, 2005, CSUF, however, is replete with objections. Of these, many are simply objections to characterizations or interpretations and are not necessarily disputes as to material facts.

The apparent disputes center on statutory compliance. The Government argues first that the statute provides no relief to Plaintiff and, as a fall-back, that the Navy had “substantially complied” with those requirements imposed by law and regulation. With respect to the first argument, at least, there is no factual dispute – the Plaintiff’s ability to invoke the multiyear contract statute for the relief it seeks is purely a question of law. In arguing that the Navy “substantially” complied with the finding requirement, the Government points to an unsigned, undated, handwritten document which, it argues, satisfies the subsection (h) finding. The Government contends it is in the handwriting of Mr. Ed Cahill, a branch chief for the procuring activity. CSUF 18-21. Plaintiff disputes these facts sufficiently to create a material dispute. Id. In any event, because we conclude that Plaintiff has no right of action as regards violation of this statute, we need not address the Government’s theory of substantial compliance.

Finally, the Government argues that we should deny relief because Gould has failed to demonstrate that it was prejudiced by the violation of the statute and, in any event, that it waived the error by failing to raise it earlier in the acquisition process. Once again, we are not required to reach these issues given our disposition of the Government’s primary theory.

The gist of Plaintiff’s claim is that the procurement contract entered into between the Navy and Gould violated the multiyear contract amendments of Section 909 of the 1982 Defense Authorization Act, as well as DoD procurement policy and regulations. We set out the whole of Section 909 as Appendix A. As we alluded to earlier, the statute added a new subsection which required findings by the “head of an agency” before adopting a multiyear contract. We quote that provision in its entirety: To the extent that funds are otherwise available for obligation, the head of an agency may make multiyear contracts ... whenever he finds – (A) that the use of such a contract will promote the national security of the United States and will result in reduced costs under the contract;

(B) that the minimum need for the property to be purchased is expected to remain substantially unchanged during the contemplated contract period in terms of production rate, and total quantities; (C) that there is a reasonable expectation that throughout the contemplated contract period the Department of Defense will request funding for the contract at the level required to avoid contract cancellation; (D) that there is a stable design for the property to be acquired and that the technical risks associated with such property are not excessive; and

(E) that the estimates of both the cost of the contract and the anticipated cost avoidance through the use of a multiyear contract are realistic.

See 10 U.S.C.A. § 2306(h)(1) (1982).

The statute also directs: “The Secretary of Defense shall prescribe defense acquisition regulations to promote the use of multiyear contracting as authorized by paragraph (1) in a manner that will allow the most efficient use of multiyear contracting.” 10 U.S.C.A. § 2306(h)(2) (1982). Pursuant to this provision DoD adopted DAR § 1-322.1(d) in order to implement the multiyear procurement statute. The regulatory language essentially mirrors that in the statute, expressing the the statutory requirements for entering into multiyear contracts as so many “limitations.” The DAR also adds a requirement not detailed by the statutory provision, namely that the findings be made in writing by the Secretary or his designee. The pertinent section of the regulation appears below:

(d) Limitations. Multiyear contracts for property and services shall not be used: * * *

(4) In the case of property, until a written determination has been made by the Secretary or his designee that:

(i.) the use of such a contract will promote the national security of the United States and will result in reduced costs under the contract; (ii.) the minimum need for the property to be purchased is expected to remain substantially unchanged

during the contemplated contract period in terms of production rate, and total quantities; (iii.) there is a reasonable expectation that throughout the contemplated contract period the Department of Defense will request funding for the contract at the level required to avoid contract cancellation;

(iv.) there is a stable design for the property to be acquired and that the technical risks associated with such property are not excessive;

(v.) that the estimates of both the cost of the contract and the anticipated cost avoidance through the use of a multiyear contract are realistic.

DAR § 1-322.1(d)(4)(i)-(v) (emphasis added). The DAR provision also sets out policy considerations to be evaluated in deciding to use multiyear contracts, and a limitation for multiyear property contracts to be fixed price contracts only. DAR 1-322.1(b)(1) and (2). This limitation might operate to preclude a cost-reimbursement remedy under Count I. The DAR provisions on multiyear contracting for the pertinent time period are included as Appendix B.

Plaintiff claims the Navy violated the statute and regulation in failing to make the required findings, especially the findings of “stable design.” See 10 U.S.C.A.

§ 2306(h)(1)(D); DAR §1-322.1(d)(4)(iv). The Plaintiff also contends that the statute must be read to guarantee a stable design, a guarantee that exists over and above the required findings that a stable design exists. The Government denies any such statutory implication. However, in arguing its fall-back contention of “substantial compliance,” it also asserts there was, in fact, a stable design for the Bancroft radio. At oral argument, the parties offered radically different definitions of “stable design,” but without recourse to any then-existing statutory or regulatory authority. No definition was included in their briefs.

Unable to anchor this “guarantee” in any statutory or regulatory text, Plaintiff asserts simply that it is implied in the statutory scheme. This view follows naturally from Plaintiff’s construction of the provision as one intended for the benefit of the contractor. We are unwilling to recognize such an important and far-reaching statutory right in the absence of any mention in the law’s text or in its legislative history.

The law ensures nothing more or less than that certain high officials are accountable for the decision to commit agency procurement funds for long-term contracts. Compliance with 10 U.S.C. § 2306(h)(1)(D) is not tied to any guarantee of stable design or of any of the other “findings.” Nor are there any provisions in the statute that provide remedies to either the procuring agency or the contractor if it is later determined that any of the Secretary’s required findings were made in error. As we discuss below, the findings requirement is but one means by which Congress exercises oversight of the Executive Branch in the procurement process.

In order for a contractor to assert a claim founded in a statutory violation, the Plaintiff must show that the provision was intended by Congress for the benefit of the contractor. Or, framed in the negative, a contractor may not rely on the violation of a provision intended for the benefit of the government.

The principle was expressed most succinctly by the Court of Appeals in Cessna Aircraft Co. v. Dalton, 126 F.3d 1442 (Fed. Cir. 1997), cert. denied, 525 U.S. 818 (1998):

We must still determine whether the provision is a binding regulation, whose breach a contractor may assert against the government. The primary benefit 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.

* * *

[I]f the primary intended beneficiary of a statute or regulation is the government, then a private party cannot complain about the government’s failure to comply with that statute or regulation, even if that party derives some incidental benefit from compliance with it.

Id. at 1451-52 (citations omitted). In other words, there is no right of the contractor to enforce what “is best described as internal operating provision[s] for the management of funds within the agency.” Id. at 1452. The obvious extension of that principle is that a contractor may not rely upon a statute which supplies no private cause of action – where enforcement is intended through Congressional oversight. The case of American Telephone and Telegraph Co. v. United States, 307 F.3d 1374 (Fed. Cir. 2002) (AT&T VI), authored by Circuit Judge Rader, applies the concept in a case very similar to this one. We address the conclusions reached by AT&T in detail in the pages that follow.

We conclude that several independent analyses each answer this question contrary to the Plaintiff. We discuss in turn the text of the statute and its legislative history, and review other cases considering the same point. Finally, we reject the Plaintiff’s argument that the matter has already been settled in its favor by the Circuit Court, and is now the “law of the case.”

A. Express Legislative Intent

As we shall see, prior cases have had to infer legislative intent from the text of the statutory provision or its legislative history. Here our task is much simpler. In looking at the stated goals of this legislation, there is really little room for interpretation in determining the intended beneficiary. The “Declaration of Policy” that precedes all of the provisions of Section 909 of the 1982 DoD Authorization Act states:

The Congress finds that in order to ensure national defense preparedness, to conserve fiscal resources, and to enhance defense production capability, it is in the interest of the United States to acquire property and services for the Department of Defense in the most timely, economic, and efficient manner. It is therefore the policy of the Congress that services and property (including weapon systems and associated items) for the Department of Defense be acquired by any kind of contract, other than cost-plus-a-percentage-of-cost contracts, but including multiyear contracts, that will promote the interest of the United States. Further, it is the policy of the Congress that such contracts, when practicable, provide for the purchase of property at times and in quantities that will result in reduced costs to the Government and provide incentives to contractors to improve productivity through investment in capital facilities, equipment, and advanced technology.

Pub. L. No. 97-86, § 909(a)(1) (emphasis added); 10 U.S.C. § 2301(a)(1) (1982). As Judge Rader suggested in Gould I, “[t]his language shows that Congress intended to promote efficiency in Government contracting policies at DoD.” Gould I, 19 Cl. Ct. at 266. Plaintiff cites the concluding phrase respecting contractor incentives, but at most, it makes contractors incidental beneficiaries. At two points in this declaration of Congress, there is a clear statement of the intended beneficiary in the words “interest of the United States.” A fair reading could not conclude otherwise than the statutory recognition and authorization for multiyear contracting is founded on that objective. The individual contractor is not the intended beneficiary of this statutory grant of authority and its limitations and prerequisites. Our search for the congressional intended beneficiary need go no further.

B. Statutory Language

(i.) Section 2306(h)(1)(A)-(E)

In its effort to establish the contractor as the intended beneficiary of the findings prerequisite, Plaintiff focuses on one subsection of one provision: The requirement for a finding “that there is a stable design for the property to be acquired and that the technical risks associated with such property are not excessive.” 10 U.S.C. § 2306(h)(1)(D). The other findings have nothing to do with contractor interests, at least not directly. Plaintiff made no effort to claim it was the beneficiary of findings as to the promotion of national security, requirements, funding, and the accuracy of cost-savings estimates. Once again, we never got a satisfactory definition of “stable design.” Yet from all that we have read and heard during the oral argument on this matter, we can hazard a general description. The contractor has a clear idea of anticipated costs of producing the item. Likewise, the Government has a concise picture of the continued usefulness of the product and can be assured that it will not become outmoded, and that once fielded only minimal upgrades to the product will be needed.

Certainly nothing in this characterization of stable design translates the concept into one that is meant solely or even primarily to benefit the contractor. And the actual requirement of the statutory provision is the “finding” itself, not a guarantee of stable design. In fact, read in the context of the surrounding provisions, the provision at issue, Section 2306(h)(1)(D), was meant for the protection of the Government and not the Plaintiff. Each of the five required findings relates to the choice of multiyear procurement, and are directed toward promoting reliability and cost-savings in defense contracting. See 10 U.S.C. § 2306 (h)(1)(A) (use of multiyear contract will promote national security and “will result in reduced total costs under the contract”); 10 U.S.C. § 2306(h)(1)(B) (that the “minimum need for the property ... is expected to remain substantially unchanged during contemplated period ...”); 10 U.S.C. § 2306(h)(1)(C) (“there is a reasonable expectation that throughout the contemplated contract period the DoD will request funding ... at the level required to avoid contract cancellation”); and 10 U.S.C. § 2306(h)(1)(E) (“estimates of both the cost of the contract and the anticipated cost avoidance through the use of a multiyear contract are realistic.”) The “stable design” determination – as well as the other findings required by Section 2306(h)(1) – is intended to ensure sound practical procurement decisions. This goal is consistent with the obligation of any Government agency in any program to protect the fisc. The principle aim of the requirements is precisely that of the procurement statute involved in the AT&T case. The statutes mandate that approvals and procedural safeguards be put in place for certain types of contracts that expose the military service to procurement risks.

(ii.) Related Provisions

Viewed in its entirety, Section 909 expands the ability of the armed services to enter into multiyear contracts, while providing various degrees of Congressional oversight to ensure that the head of the military department is accountable when the agency does so. This is confirmed in sections of the law other than those pertaining to the required findings by the “head of an agency.” For instance, one of the major goals of the Senate bill was to increase the ceiling in cancellation clauses in multiyear contracts. House Rpt. at 124-25. As with the Section 2306(h)(1) findings, there is an element of direct Congressional oversight. For contracts with cancellation ceilings in excess of $100 million, there is a requirement to notify the Senate and House Committees on Armed Forces and Appropriations. 10 U.S.C. §2306(h)(3).

(iii.) Defense Acquisition Regulations and Policy The regulatory implementation of the law is likewise intended for the immediate benefit of the procuring agency, and ultimately for the interest of national security. The statute directs the Secretary of Defense to “prescribe defense acquisition regulations to promote the use of multiyear contracting as authorized by paragraph (1) in a manner that will allow the most efficient use of multiyear contracting. 10 U.S.C. § 2306(h)(2)(A) (emphasis added). We refer the reader to our prior summary of those provisions and to Appendix B where those regulations are reprinted in full.

As in the present case, the AT&T plaintiff had also alleged that the Navy failed to comply with a variety of procurement regulations pertaining to the selection of contract type. The Court characterized the regulations at issue as “directives [that] provide only internal governmental direction.” AT&T VI, 307 F.3d at 1380. “Like [the statutory provision]” the Court held, “these provisions supply no remedy for private parties in a judicial form.” Id. The same must be said about the written approvals required by the DAR and other official policy guidance on multiyear procurement.

Moreover, the regulation once again supports the conclusion that the multiyear statute is not intended to benefit Plaintiff. See, e.g., 10 U.S.C. § 2306(h)(2)(B) (“Such regulations may provide for cancellation provisions in such multiyear contracts to the extent that such provisions are necessary and in the best interests of the United States.”) (emphasis added.) In the wake of the new regulations, the Chief of Naval Material issued the following:

Department of Defense policy requires that supplies and services be acquired in the most economical manner consistent with sound management. Thus, planning for the acquisition of such supplies and services should always consider contracting alternatives that will capture the economies of long term program stabilization with minimum disruption and risk; will result in reduced costs to the Government; and will provide incentives to contractors to improve productivity through investment in capital facilities, equipment, and advanced technology. For instance, contracts for quantity production should be structured and funded to benefit from economies of scale and economic production lots where such economies can be attained at an acceptable level of risk to both the Government and the contractor.

Memorandum from Chief of Naval Material, Subject: Expedited Departmental DAR Implementation: Expanded Multiyear Procurement (Mar. 4, 1982).

Plaintiff cites this very memorandum for the proposition that the limitations of

Section 2306(h) “benefit the contractor through added protections and incentives.” Pl. Br. at 8, n.7. This same “incentives” language is in the declaration of policy which we cited at the outset of this section. The policy underlying the Defense Authorization Act is to expand the industrial base and improve productivity in defense contracting. This cannot be accomplished without providing incentives to contractors. The statute and regulations may create incentives, but whatever incidental benefits arise for contractors, will ultimately benefit the intended beneficiaries of the Defense Authorization Act – DoD, the military departments, and national defense.

The multiyear procurement provisions requiring agency-level approvals foster good business practices by the Government. The required findings under the multiyear procurement provision force the agency to consider the factors which militate against a long-term contractual commitment. Exposing the taxpayer to unnecessary risk by ignoring these factors in procuring defense-related items is bad procurement. But the Navy’s disregard of Section 2306(h) does not give the contractor the occasion to seek relief from a failed contract.

C. Legislative History

The dissenting opinion in the en banc decision in AT&T criticized the majority for resorting to legislative history where the statute was unambiguous. AT&T IV, 177 F.3d at 1381-82 (Plager, J., dissenting). The statutory purpose of the multiyear contract law is likewise clear and the parties agree we need go no further. So we feel somewhat reluctant to belabor the point. Still the legislative history is worth addressing, if for no other reason than because Plaintiff insisted at oral argument that this law was an intended boon to contractors despite the absence of any language in the statute confirming this postulate.

Trial Judge Rader found with respect to Section 2306 no evidence in the legislative history of the statute supporting Plaintiff’s claim that it was the intended beneficiary of the law. Gould I, 19 Cl. Ct. at 266-67. We find the contrary is true – the history is replete with references to governmental interests. The legislative history of the statute speaks in terms of “providing a general policy for the procurement of property and services” which gives the military departments additional tools with which to procure those items needed to accomplish their defense missions.

Reading the testimony of then Secretary of Defense Casper Weinberger during the mark-up of this legislation in Spring 1981 – quoted extensively in Gould I, 19 Cl. Ct. at 266-67 – we were reminded of the era in which this Authorization Act was passed, the era of increased defense spending and build-up in the first year of the Reagan Administration. In his testimony, the Secretary of Defense urges passage of the multiyear contract law so that:

savings and other advantages may be achieved, through improved economies and efficiencies in the production processes, better utilization of industrial facilities, enhanced attractiveness of and competition for Government requirements, and a reduction of the administrative burden in the placement and administration of contracts.

Hearing on Multiyear Procurement, Armed Services Committee, U.S. House of Representatives, 97 Cong., 1 Sess., 6 (1981).th st Likewise, the Conference Report states:

Under the guidelines of the policy ... property and services for the Department of Defense could be acquired by any kind of contract, other than cost-plus-a-percentage-of-cost contracts, but including multiyear contracts, that would promote the interest of the United States.

House Report No. 97-311, 124, 3 U.S. Cong. & Adm. News 1865 (1981) (emphasis added.) According to the Report the amendments would: provide for the purchase of property at times and in quantities that would result in reduced cost to the government, provide incentives to contractors to improve productivity through investment, and provide for achievement of economic-lot purchases and efficient production rates.

Id.

D. AT&T and Related Case Law

When we move from the consideration of our statute and consider relevant case law, we find our conclusion is confirmed. This is best illustrated in the decisions of the Federal Circuit in the previously mentioned AT&T case, specifically the en banc reconsideration of its earlier holding on a certified matter, AT&T v. United States, 177 F.3d 1368 (Fed. Cir. 1999) (AT&T IV), and the follow-up application of that decision by a panel decision in a subsequent appeal, AT&T v. United States, 307 F.3d 1374 (Fed. Cir. 2002) (AT&T VI), authored by Judge Rader.

AT&T also involved allegations that the U.S. Navy violated a procurement provision and various procurement regulations and directives. The statutory provision at issue in AT&T was Section 8118 of the 1987 DoD Appropriations Act. The provision prohibited the military service from obligating funds for certain fixed-price contracts:

unless the Under Secretary of Defense for acquisition determines, in writing, that program risk has been reduced to the extent that realistic pricing can occur, and that the contract type permits an equitable and sensible allocation of program risk between contracting parties ...

Pub.L. No. 100-202, § 8118, 101 Stat. 1329, 1329-84 (Dec. 22, 1987). The provision also prevented the delegation of this responsibility below Assistant Secretarial level, and:

[p]rovided further, that the Under Secretary report to the Committees on Appropriations of the Senate and House of Representatives in writing, on a quarterly basis, the contracts which have obligated funds under such a fixed price-type developmental contract.

Id. The Navy contracted with AT&T for the procurement of an undersea radar system, but in doing so the Navy made none of the findings required by Section 8118, and did not report the contract to the Appropriations Committees.

The trial court certified whether the violation of Section 8118, undermined the Navy’s authority to enter into a contract and thus rendered it void ab initio. The Court of Appeals held en banc that the Navy’s “noncompliance with the supervisory and reporting instructions” in the statute did not invalidate the contract or render it void. AT&T IV, 177 F.3d at 1375. In arriving at this conclusion, Judge Newman, writing for the majority of the Court, held:

Congress can not have intended to charge the contracting partner with the adverse consequences [of the agency’s “imperfect compliance” with § 8118] depending on whether the Defense Department carried out the internal responsibilities and filed the reports that Congress required. Nor is it the judicial role to discipline the agency’s noncompliance with supervisory and reporting instructions of congressional oversight.

Id. (citations omitted).

The Court relied upon clear legislative intent confirming that the written findings and reporting required by Section 8118 “serves the government interests in the long-term health of the defense industry, and that this section not be used as the basis for litigating the propriety of an otherwise valid contract.” Id. (quoting S. Rep. No. 100-326, 100 Cong., 2d Sess. at 105 (1988)) (emphasis supplied by Court).th Upon remand, the Court of Federal Claims held that the procurement violations were not actionable by the plaintiff, insofar as Congress intended no “protectable interest in the proper application of Section 8118.” AT&T v. United States, 48 Fed. Cl. 156, 160 (2000) (AT&T V). Indeed, this Court had described the Navy’s noncompliance with the internal certification and reporting procedures of Section 8118 as “simply a failure to abide by housekeeping rules.” Id. Put another way, the violated statutory provision was intended primarily for the government’s benefit and thus gave the contractor no right to enforce it. See id. (citing Cessna Aircraft Co., 126 F.3d at 1451-52. In its second application of the law to these facts, the U.S. Court of Federal Claims was upheld by the Federal Circuit in an opinion authored by Judge Rader. In AT&T VI, Judge Rader characterized the law requiring certain findings for funding fixed-price contracts as an appropriations oversight provision. AT&T VI, 307 F.3d at 1378. The Court stressed that enforcement of that statute was limited to “the ‘supervisory role’ of the legislative branch.” Id. Plaintiff argues that our statute and its implementing regulations do not fall under the AT&T rule. The multiyear contract provision, it claims, is intended to limit the risks associated with fixed-price contracts. Consequently, Gould argues, the contractor is an intended beneficiary of Section 2306(h), and can enforce the provision. We have been unable to find any indication in these sources that the multiyear contract provision was prompted by a concern over fixed-price contracting. Indeed except for the limitation in the DAR that confines multiyear contracting to fixed-price contracts – a limitation the parties did not discuss – we have not discovered and the parties have not pointed to the mention of fixed-price contracts in the statute or regulations. Plaintiff also attempts to distinguish the AT&T case. It involved a reporting requirement. Therefore, argues Plaintiff, it was clear that Congress intended no judicial enforcement of the law. Gould claims that this case is different, that the statute is not purely a Congressional oversight measure. Both statutes contain an unexecuted supervisory requirement, the “findings” or “determinations.” The Court’s focus on the reporting requirement does not impair AT&T’s precedential value. The language of our statute and its legislative design are indistinguishable from that of Section 8118. The particular statutory violation complained of in AT&T was not the reporting requirement; it was the failure of the Under Secretary of Defense to make required determinations as to program risk and realistic pricing. AT&T VI, 307 F.3d at 1377. This type of violation is no different than the Navy’s failure to make the findings required by Section 2306(h)(1). It is true that the AT&T case focuses on the reporting nature of the requirements as evidence that enforcement of the congressional rules would be accomplished by the oversight function. This aspect of the opinion does not change our view of Section 2306(h)(1). Reporting is not the only way Congress seeks to enforce its rules. It also does so by requiring that critical decisions – findings – be made by senior officials. This is true in both Section 2306(h) (Gould) and Section 8118 (AT&T). Testimony of the Secretary of Defense before the House Committee on Armed Services confirms the understanding this was indeed intended as an oversight provision. As Secretary Weinberger observed, it “provides for appropriate oversight by Congress over the use of multiyear procurement on large dollar value contracts.” Hearing on Multiyear Procurement, Armed Services Committee, U.S. House of Representatives (June 23, 1981). Therefore, the rationale of AT&T applies with equal force here: it is not the role of the courts “to discipline the agency’s noncompliance with the supervisory and reporting instructions of congressional oversight.” AT&T IV, 177 F.3d at 1375 (citations omitted.) The AT&T case confirms the principle that contractors cannot avail themselves of a statute that is intended primarily for the benefit of the Government, or one which comprehends enforcement solely in the Legislative Branch pursuant to its oversight powers. Section 2306(h)(1) was just that, an oversight measure with the goal of ensuring that multiyear contracts serve the interests of the United States.

E. Other Case Law

Contractors may not rely on violations which pertain to what has been variously described as agency operating procedures, house-keeping rules, or internal Government direction. The AT&T case is not the only authority we may look to in order to determine what kinds of statutory violations support a contractor claim.

The Court of Appeals decision in Cessna Aircraft speaks to this issue. Without gaining the proper authority to do so, the Navy deviated from a Cancellation of Items clause that was mandatory for all multiyear contracts. The contractor argued that the Navy’s “late” election of the option year was invalid because the Navy had not gotten the proper authorization to extend the time. The Circuit Court held that the “primary purpose behind the Cancellation of Items clause is to protect the government’s interest by encouraging government officials to monitor availability of funds for each fiscal year and to provide notice to contractors accordingly.” Cessna Aircraft Co., 126 F.3d at 1454. As such, the Plaintiff “may not rely on the deviation in arguing the Navy’s exercise of options [under the contract] was ineffective.” Id. at 1455. At most, the contractor in Cessna was an incidental beneficiary of the statute and, therefore, had no recognizable interest in enforcing the provisions. Id. at 1451-52, 1454-55.

We may also look to other cases in an effort to determine which statutory or other violations have been recognized as benefitting the contractor and which do not. The parties each cite the same group of cases to support their opposing positions. In each of these cases, the Court found the violation to be actionable by the contractor. And, invariably, the asserted violation had to do with an improper price adjustment clause or otherwise had to do with the contractor’s compensation. See, e.g., Beta Sys. Inc. v. United States, 838 F.2d 1179 (Fed. Cir. 1988) (contractor subjected to economic price adjustment index in violation of the DAR); LeBarge Prods., Inc. v. West, 46 F.3d 1547 (Fed. Cir. 1995) (contractor’s bid price artificially increased due to improper auction); Urban Data Sys., Inc. v. United States, 699 F.2d 1147 (Fed. Cir. 1983) (illegal price adjustment clause); Applied Devices Corp. v. United States, 219 Ct. Cl. 109 (1979) (improper cancellation ceiling); Chris Berg, Inc. v. United States, 426 F.2d 314, 317-318 (Ct. Cl. 1970) (contractor prohibited from correcting mistaken bid).

Since the improper clause or proscribed activity operated directly to the detriment of the contractor, clearly the violated provision had been intended for plaintiffs’ protection. Manifest in each of these cases is the principle that in order to pursue a legal remedy for the violation, the particular procurement provision at issue must directly benefit the contractor.

By contrast, AT&T, Cessna, and a trial opinion in an “illegal contract” case, Northrop Grumman Corp. v. United States, 47 Fed. Cl. 20 (2000), each involved the failure to make findings, or to satisfy some other internal operating requirement of no particular direct concern to the contractor. One case, in particular, was emphasized by counsel for Plaintiff during oral argument – Urban Data Systems. As Judge Miller noted in distinguishing this same case, Urban Data Systems involved an illegal price term, whereas the illegality alleged in her case arose from the government’s failure to perform a risk determination. Northrop Grumman, 47 Fed. Cl. at 40 n.6.

Finally, Plaintiff argues that this debate has already been settled, and that the viability of its “illegal contract” claim under Section 2306(h)(1)(D) is firmly established law of the case in Gould II, and later confirmed in Gould IV.

The law of the case doctrine provides that the decision, judgment, opinion or rulings on a former appeal become the law of the case in further trial proceedings. It binds trial courts like this one, and prevents the re-litigation of issues that have been decided on appeal in the same matter. See Gould IV, 67 F.3d at 930. The purpose of the doctrine is to promote finality, a matter which obviously concerned the Court of Appeals in its most recent decision on a matter that it deemed to be settled – whether Gould’s allegations sufficed to state a claim under Rule 12. To assess Plaintiff’s argument, we must take a close look at the earlier opinions, Gould I and Gould II, in particular.

As the first trial judge in this matter, in Gould I Judge Rader dismissed all Counts for failure to state a claim. Among the conclusions reached by Judge Rader was that the multiyear procurement restrictions in Section 2306(h) were intended to benefit the Government as opposed to private contractors. Gould I, 19 Cl. Ct. at 266. In fact, there is little need to improve upon his reasoning. Judge Rader traced the legislative history of the statute and distinguished the very same cases upon which Plaintiff now relies. He later memorialized this view as the principal author of AT&T VI. We take more than passing comfort in the fact that Judge Rader came to the same substantive conclusion we have. But according to Plaintiff, we must reject Judge Rader’s conclusions, given the subsequent treatment of the case on appeal, upon remand, and in the second appeal.

Gould’s argument may be summarized as follows: Gould I held that Section 2306(h)(1) was enacted for the benefit of the Government and not for the contractors; the Federal Circuit vacated that opinion in Gould II, thereby reversing Judge Rader’s conclusion as to Count I and establishing its opposite. The law of the case principles, therefore, foreclose this Court from revisiting the “holding” of the Court of Appeals. Judge Rader’s Gould I decision was indeed vacated by the Federal Circuit.

See Gould II, 935 F.2d at 1271. Plaintiff clouds the issue with respect to precisely which aspects of the Court’s decision in Gould I were explicitly reversed. With its remand, the Court of Appeals did not rule that the statute gave Plaintiff a valid cause of action. The Federal Circuit’s decision was far more limited in its reach.

First, the “intended beneficiary” theory was initially presented as “an alternative theory for recovery.” Gould I, 19 Cl. Ct. at 265. And it was treated by the trial court as an alternative holding. See id. at 269. This theory was addressed by the trial court only after it determined that reformation was not an appropriate form of relief for the particular claims asserted by Gould. The Court’s primary holding respecting the “illegal contract” claim was that the equitable remedy of reformation was not available because Gould could not demonstrate: (1) that the Government received a benefit from Plaintiff’s performance; or (2) that the illegality was not plain. Gould I, 19 Cl. Ct. at 264-65. The Court of Appeals reversed Gould I on this holding. See Gould II, 935 F.2nd at 1275. The Federal Circuit also faulted the Claims Court for construing the facts underlying the substantive counts in the procedural posture of a Rule 12 motion, “contrary to the standard for considering a motion for dismissal.” Id. The Court of Appeals noted that Judge Rader apparently did not accept the facts pled as true for purposes of a motion under Rule 12 (b)(4). Likewise, with respect to the remaining counts of Plaintiff’s Complaint, the basis for vacating the dismissal was the Court of Appeals’ de novo conclusion that those allegations met the liberal standards for notice pleading. Id. at 1275-76. The “law of the case,” therefore, is that these allegations survive a motion to dismiss for failure to state a claim upon which relief can be granted. Whether the merits of those very same claims survive summary judgment is an entirely different and undecided matter. In vacating Judge Rader’s decision, the Circuit Court did not mention, much less address and reject, the trial court’s alternative theory of intended beneficiary.

Similarly, the Court of Appeals, in the most recent appeal of this case, did no more than reject Judge Sypolt’s conclusion that subject matter jurisdiction was lacking. See Gould III, 29 Fed. Cl. 758. It did not, as Plaintiff suggests, rule on the substantive issue of whether the multiyear contracting statute provides a valid cause of action for Gould. This issue, which is necessarily linked to the “intended beneficiary” principles, was beyond the scope of the issues decided in Gould IV. Accord, Northrop Grumman Corp. v. United States, 63 Fed. Cl. 38, 44-45 (2004) (In rejecting plaintiff’s reliance on Gould IV to escape the precedential effect of AT&T, Judge Horn ruled that the Federal Circuit’s opinion in Gould IV did not review the language or legislative history of multiyear contracting with respect to the controlling issue of whether a private cause of action was intended by Congress, as opposed to legislative oversight for violations of the statute.).

Finally, we note that Gould I-IV were decided before the Federal Circuit’s careful analysis of this issue in AT&T. As we have seen, that precedent clearly prevents contractors from relying upon statutes aimed primarily at governmental functions and enforced through Congressional oversight. The Court of Appeals in AT&T merely applied established principles of statutory interpretation and separation of powers in finding that the violation of a particular provision in an appropriations statute gave no private right of action to the contractor. There is no suggestion that the Federal Circuit came to a “contrary decision” in AT&T than it had earlier in either Gould II or Gould IV. Rather the Court of Appeals in these prior decisions came to no conclusion on this issue. Accordingly, we do not today “reopen what has already been decided.”

Gindes v. United States, 740 F.2d 947, 949 (Fed. Cir. 1984) (quoting Messinger v. Anderson, 225 U.S. 436, 44 (1912)). We have simply applied the law as it has been established by binding precedent to an issue not yet decided.

Our conclusion that Gould may not avail itself of any alleged violation of Section 2306(h)(1) obviates the need to address the subsidiary claims of the parties. Accordingly, we find in favor of the Government on Count I of the Complaint. We hereby deny Plaintiff’s motion for partial summary judgment and grant Defendant’s cross-motion. The parties shall file a Joint Status Report no later than August 15, 2005, proposing a schedule for further proceedings on the remaining counts of Plaintiff’s Complaint.

IT IS SO ORDERED.

LAWRENCE M. BASKIR

Judge

Attachments (Appendix A and B)