United States Court of Appeals for the Federal Circuit
06-5048
NIGHT VISION CORP.,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.
Stephen Novack, Novack and Macey LLP, of Chicago, Illinois, argued for
plaintiff-appellant. On the brief was James S. DelSordo, Cohen Mohr LLP, of
Washington, DC. Of counsel on the brief were P. Andrew Fleming and John F.
Shonkwiler, Novack and Macey LLP, of Chicago, Illinois.
Kyle E. Chadwick, Senior Trial Attorney, Commercial Litigation Branch, Civil
Division, United States Department of Justice, of Washington, DC, argued for
defendant-appellee. With him on the brief were Peter D. Keisler, Assistant Attorney
General, and David M. Cohen, Director. Of counsel was Mark A. Melnick, Assistant
Director.
Jere W. Glover, Brand Law Group, P.C., of Washington, DC, for amici curiae.
With him on the brief was Andrew D. Herman. Of counsel on the brief was Paul J.
Seidman, Seidman & Associates, P.C., of Washington, DC.
Appealed from: United States Court of Federal Claims
Judge Lawrence J. Block
United States Court of Appeals for the Federal Circuit
06-5048
NIGHT VISION CORP.,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.
______________________________
DECIDED: November 22, 2006
______________________________
Before MAYER, Circuit Judge, FRIEDMAN, Senior Circuit Judge, and GAJARSA,
Circuit Judge.
FRIEDMAN, Senior Circuit Judge.
A small business concern contends that it had a contractual commitment with the
Air Force that, if it successfully completed the first two phases of a research and
development contract, it would be awarded the contract for further development and
ultimate production of the device it developed; and that the Air Force breached this
commitment when it awarded the production contract to another company. The Court of
Federal Claims dismissed the breach-of-contract suit that the small business had filed,
ruling that the Air Force had not made any such contractual commitment. Night Vision
Corp. v. United States, 68 Fed. Cl. 368 (2005). We affirm.
I
Congress created the Small Business Innovation Research (“SBIR”) program to
assist small-business concerns in obtaining and performing research and development
work. See 15 U.S.C. § 638(a)-(d). The program requires federal agencies to reserve
some of their research and development funds for small businesses. See 15 U.S.C. §
638(e)(4). The SBIR program has three phases. Phase I involves “determining . . . the
scientific and technical merit and feasibility of ideas that appear to have commercial
potential.” Id. § 638(e)(4)(A). Phase II is designed “to further develop proposals which
meet particular program needs.” Id. § 638(e)(4)(B). Phase III involves “commercial
applications of SBIR-funded research and development” or “products or services
intended for use by the Federal Government, by follow-on non-SBIR Federal funding
awards” or “the continuation of research or research and development that has been
competitively selected using peer review or scientific review criteria.” Id. § 683(e)(4)(C).
Funding for Phase III is provided by either “non-Federal sources of capital” or “non-
SBIR Federal funding.” Id.
A. The basic facts in this case, as found by the Court of Federal Claims, are
largely undisputed. The Air Force awarded the appellant Night Vision Corporation
(“Night Vision”), a small business concern, successive Phase I and Phase II contracts to
develop improved “Panoramic Night Vision Goggles” (“Goggles”), which would have a
broader field of view than existing Goggles.
After Night Vision successfully developed a prototype under the Phase I contract,
it entered into a Phase II contract to produce twelve prototypes of the Goggles. Night
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Vision, which had only three employees, hired Insight Technology, Inc. (“Insight”), which
was not a small business, as a subcontractor to assist in performing the contract.
During Phase II, the Air Force indicated to Night Vision that it might receive a
Phase III contract. Night Vision, 68 Fed. Cl. at 372. That possibility led to tensions
between Night Vision and Insight, which demanded that Night Vision guarantee that
Insight would be the Phase III subcontractor and would participate in production of
Goggles following the completion of Phase III. Id. The Air Force ultimately mediated
this dispute, after Insight stopped working on the project, thereby endangering the
completion of the Phase II contract. Insight resumed performance of the subcontract
and the Air Force continued to discuss with Night Vision the possibility of a Phase III
contract. Id. at 372-73.
In the Spring of 1999, when performance of the Phase II contract was well under
way, the Air Force began to investigate options other than a Phase III contract with
Night Vision for producing the Goggles; including directly contracting with Insight. Id. at
373. On June 24, 1999, the Air Force first informed Night Vision that it was unlikely that
it would be given a Phase III contract for the Goggles. Four days later, the Air Force
officially announced it was considering a competitive procurement. Id.
Night Vision successfully completed the Phase II contract on July 30, 1999. On
August 27, 1999, the Air Force told Night Vision at a meeting that it was considering
whether to use a Phase III contract or hold a competitive procurement. Id. at 374-75.
When Night Vision indicated its unwillingness to submit a Phase III proposal unless it
was likely to result in a contract, the Air Force responded that no guarantees could be
made. Id. at 375. At this meeting, the Air Force’s contracting officer took notes that
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reflected her belief that Night Vision had at some point been promised a Phase III
contract, though she did not indicate when, or by whom, she believed this promise was
made. Id. Night Vision never submitted a Phase III proposal.
In December 1999, the Air Force issued a Program Research and Development
Announcement for Goggles, which initiated the competitive procurement process. Id. at
375-77. Three companies submitted bids: Night Vision, Insight, and Litton Systems,
Inc. (“Litton”). The Air Force rated Insight first, Litton second, and Night Vision third,
and awarded the contract to Insight.
B. Night Vision then filed a five-count complaint in the Court of Federal Claims.
The court rejected all of those claims. We discuss only those claims that Night Vision
pursues in this appeal.
The Court of Federal Claims dismissed, under its Rule 12(b)(6), for failure to
state a valid claim for relief, Night Vision’s claim that the Air Force had breached a
written contract that if Night Vision successfully completed Phases I and II of the
research and development contract, it would be awarded a Phase III production
contract. Night Vision’s theory was that the Air Force’s contractual commitment was
provided by a statutory provision that it contends was incorporated into the Phase I and
Phase II contracts. The Court of Federal Claims rejected this argument “because the
statute plaintiff seeks to incorporate into the contract . . . imposes no obligation or duty
on either party to the contract.” Id. at 371.
The court granted summary judgment for the United States on Night Vision’s
claims that the Air Force (1) had made the same commitment in an oral contract it had
entered into with Night Vision, which the Air Force breached, and (2) had breached an
06-5048 4
implied-in-fact contract with Night Vision containing that commitment. The court so
ruled “because plaintiff has failed to produce evidence that a government representative
with contracting authority made a contract with plaintiff.” Id. at 371.
II
A. The only written contracts relating to these arrangements between Night
Vision and the Air Force apparently were the Phase I and Phase II agreements. As
Night Vision indicates, neither of these documents contained any explicit commitment
that if Night Vision successfully completed the first two phases, it would receive a Phase
III contract.
Night Vision contends, however, that such a commitment was provided in a
statutory provision which, it argues, the Phase I and Phase II contracts should be
deemed to incorporate. It relies on the principle that “[t]he law in effect when a
Government contract is made becomes a part of the contract.” Jackson v. United
States, 216 Ct. Cl. 25, 36 (1978). Whatever may be the meaning and scope of that
principle in other situations, however, the statute that Night Vision invokes does not
provide such a commitment.
That statute is 15 U.S.C. § 638(j), which is captioned “(j) Small Business
Administration policy directives for the general conduct of small business innovation
research programs,” and provides in pertinent part:
(1) Policy directives
The Small Business Administration . . . shall,
within one hundred and twenty days of July 22, 1982, issue
policy directives for the general conduct of the SBIR
programs within the Federal Government, including providing
for —
....
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(2) Modifications
Not later than 90 days after October 28, 1982,
the Administrator shall modify the policy directives issued
pursuant to this subsection to provide for —
....
(C) procedures to ensure, to the extent practicable,
that an agency which intends to pursue research,
development, or production of a technology developed by a
small business concern under an SBIR program enters into
follow-on, non-SBIR funding agreements with the small
business concern for such research, development, or
production.
Finally, § 638(j)(3), directs that not more than 30 days after December 21, 2000,
the administrator “shall modify the policy directives issued pursuant to this subsection”
to meet various specified objectives.
The only specific requirement that § 638(j)(2)(C) imposes is that the
Administrator “modify the policy directives issued pursuant to this subsection to provide
for . . . (C) procedures to ensure, to the extent practicable, that an agency which intends
to pursue . . . a technology developed by a small business concern under an SBIR
program enters into follow-on, non-SBIR funding agreements with the small business
concern for such research, development or production.” The Administrator has done
so. See SBIR Research Program Policy Directive, 67 Fed. Reg. 60,072, 60,075-076
(Sept. 24, 2002) (noting that the special acquisition preference given to SBIR awardees
is “a preference and is not mandatory” and that “[i]t is clear that Congress intends, to the
greatest extent practicable, that agencies issue Phase III awards to the SBIR awardees
that developed the technology”); SBIR Research Program Policy Directive, 58 Fed.
Reg. 42,607, 42,612 (Aug. 10, 1993) (“A Federal agency may enter into a third phase
agreement with a small business concern for additional work to be performed during or
06-5048 6
after the second phase period. . . . Agencies which intend to pursue research, research
and development or production of a technology developed by a small business concern
under the STTR [Small Business Technology Transfer] Program will give special
acquisition preference . . . to the STTR company which developed the technology”).
The statutory provision thus deals with modification of “policy directives” to
“provide for . . . procedures” to “ensure to the extent practicable” the accomplishment of
the statutory policy that Phase III, “follow-on” contracts should be awarded to small
business concerns that have successfully completed Phase I and Phase II projects.
Night Vision would interpret this provision as requiring that the objective stated in
sub-paragraph (C) be made a mandatory provision of every Phase I and Phase II
contract. In effect, it would read into every such contract the requirement that if a
contractor successfully completes Phase I and Phase II, the government must adopt
Phase III as the way to perform the production phase of the project and award the
Phase III contract to the small business concern involved.
Night Vision’s interpretation is not supported by, and is inconsistent with, the
language and meaning of § 638(j)(2)(C), which does not impose such a requirement on
the government. Indeed, that provision deals with “procedures” to accomplish the
stated objective; it does not mandate particular action to achieve those results.
Night Vision’s position would seriously limit the government’s ability to select the
form of procurement that it considers most appropriate in the particular situation. Once
the prototypes have been successfully completed in the Phase I and Phase II contracts
and the government has determined to go ahead with the acquisition of the prototyped
product, it is within the government’s discretion to select the particular form the
06-5048 7
procurement will take. It could be a Phase III contract, which the statute favors, but
does not require, awarded to the small business concern that performed the Phase I
and II contracts. It could be a negotiated contract with a particular supplier. Or, as was
done in this case, it could be a competitively-let contract. Cf. SBIR Research Program
Policy Directive, 67 Fed. Reg. at 60,075 (discussing agencies’ alternatives to awarding
Phase III contracts and stating that “agencies are required to report only those
instances where a follow-on award with non-SBIR funds was issued to a concern other
than the SBIR awardee that developed the technology to be pursued under the follow-
on reward”).
Nothing in § 638(j), however, bars the government from making that choice or
requires it to (1) select a Phase III procurement and (2) award the contract therefor to
the small business concern that performed the Phase I and II contracts. We decline to
read into those contracts such a requirement for, and commitment by, the government.
Whatever may be the policy favoring small business in the present situation, there is
simply no valid basis for reading such a requirement into the contract.
In sum, § 638 imposes no duty on the government to award a Phase III contract
to a concern that successfully completes a Phase II contract. Section 638 creates no
rights for any private entities and therefore is not a “regulation . . . intended to define
and state the rights of a class of persons.” Berg v. United States, 192 Ct. Cl. 176, 183
(1970). The Court of Federal Claims correctly ruled that “nowhere does it [§ 638]
impose an obligation directly upon a procuring agency nor does it create any
enforceable rights under a SBIR contract.” Night Vision, 68 Fed. Cl. at 383.
06-5048 8
Indeed, if Night Vision believed it had a contractual commitment from the Air
Force to give it a Phase III contract, one would expect it to submit a proposal for such
contract – which it did not do.
B. Night Vision contends that, even if there was not a written contract or
provision requiring the Air Force to give it the Phase III contract, such an obligation was
created by oral promises of Air Force officials that Night Vision would receive such a
contract. Although the contracting officer denied that she had so promised, other
statements of hers indicate that such promises may have been made. Night Vision also
points to deposition testimony by its officers and, by Insight employees, that it received
such promises, although the officers and employees did not state by whom or when
those promises were made. Night Vision argues that, because of these conflicting
views on the factual issue, summary judgment was improper.
The fatal flaw in this argument, as the Court of Federal Claims pointed out, is that
Night Vision “failed to produce evidence that a government representative with
contracting authority made a contract with plaintiff.” Night Vision, 68 Fed. Cl. at 371.
Although the contracting officer has broad discretion to execute and amend contracts,
administer contractual performance and decide contractual claims, her authority does
not include determining the type of procurement to be used for a particular transaction.
That is a decision to be made by other officials of the Air Force, who have that authority
— in this case apparently by Donald L. Utendorf, the Chief of the Research and
Development Contracting office for the Technology Directorates at Wright-Patterson Air
Force Base in December 1999. Id. at 376. Not only has Night Vision failed to attribute
the alleged oral promises to an official authorized to make them, but much of the
06-5048 9
evidence upon it which it relies does not even identify the official who allegedly made
the promises.
C. Night Vision further contends that even if there was no valid oral contract to
award it the Phase III contract, there was an implied-in-fact contract to do so. “An
implied-in-fact contract is one founded upon a meeting of the minds and ‘is inferred, as
a fact, from the conduct of the parties showing, in the light of the surrounding
circumstances, their tacit understanding.’” Hanlin v. United States, 316 F.3d 1325, 1328
(Fed. Cir. 2003) (citation omitted).
The elements of an implied-in-fact contract are the same as those of an oral
express contract. Trauma Serv. Group v. United States, 104 F.3d 1321, 1325 (Fed. Cir.
1997). One of the elements Night Vision was required to show was “actual authority on
the part of the government’s representative to bind the government.” Flexfab, L.L.C. v.
United States, 424 F.3d 1254, 1265 (Fed. Cir. 2005) (emphasis omitted) (citing Schism
v. United States, 316 F.3d 1259, 1278 (Fed. Cir. 2002) (en banc)). The flaw we pointed
out in Night Vision’s oral contract theory — the failure to show that the Air Force officials
who allegedly promised a Phase III contract had the authority to make that commitment
— also is fatal to the implied-in-fact contract theory.
D. We are mindful of the strong public policy, reflected in the SBIR program,
favoring the awarding of government research and development contracts to small
business concerns, as the Small Business Technology Council discusses in its amicus
curiae brief. That policy, however, cannot prevail over the fatal defects in Night Vision’s
case that we have discussed. Night Vision undoubtedly had the hope, and perhaps the
expectation, that if it successfully completed the Phase I and Phase II contracts, it would
06-5048 10
be given a Phase III contract. Unfortunately for Night Vision, however, it did not have
such a binding contractual commitment from the Air Force. Since its entire theory in this
appeal is that the Air Force breached a contractual commitment, it cannot prevail.
CONCLUSION
The judgment of the Court of Federal Claims dismissing Night Vision’s complaint
is
AFFIRMED.
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