United States Court of Appeals for the Federal Circuit
05-5018
FLEXFAB, L.L.C.,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.
John W. Allen, Varnum, Riddering, Schmidt & Howlett, LLP, of Grand Rapids,
Michigan, argued for plaintiff-appellant. With him on the brief was Perrin Rynders. Of
counsel was Cynthia W. Warren.
Claudia Burke, Attorney, Commercial Litigation Branch, Civil Division, United
States Department of Justice, of Washington, DC, argued for defendant-appellee. With
her on the brief were Peter D. Keisler, Assistant Attorney General, David M. Cohen,
Director, and Harold D. Lester, Jr., Assistant Director.
Appealed from: United States Court of Federal Claims
Judge Lawrence J. Block
United States Court of Appeals for the Federal Circuit
05-5018
FLEXFAB, L.L.C.,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.
___________________________
DECIDED: September 27, 2005
___________________________
Before CLEVENGER, BRYSON, and PROST, Circuit Judges.
CLEVENGER, Circuit Judge.
Plaintiff-appellant Flexfab, L.L.C. ("Flexfab") appeals the ruling of the United
States Court of Federal Claims on cross-motions for summary judgment that Flexfab
was not an intended third-party beneficiary of a contract between Capital City Pipes,
Inc. ("Capital City"), a now-insolvent contractor, and The Defense Logistics Agency,
Defense Supply Center Columbus ("DSCC" or "government"), or in the alternative that
Flexfab was not a direct party to an implied-in-fact contract with the government. See
Flexfab, LLC v. United States, 62 Fed. Cl. 139 (2004). Because the record is absent
evidence that a government agent with authority to contract on behalf of the government
intended to benefit Flexfab in the contract between Capital City and DSCC, or to
contract with Flexfab directly, we affirm.
I
Congress passed the Small Business Act of 1953, 15 U.S.C. §§ 631-651, to "aid,
counsel, assist, and protect . . . the interests of small-business concerns in order to
preserve free competitive enterprise [and] to insure that a fair proportion of the total
purchases and contracts or subcontracts for property and services for the
Government . . . be placed with small-business enterprises." 15 U.S.C. § 631(a) (2000).
In section 8(a) of the Act, 15 U.S.C. § 637(a), Congress delegated to the Small
Business Administration ("SBA") the authority to "enter into contracts with any
procurement agency of the Federal Government to furnish required goods or services,
and, in turn, to enter into subcontracts with small businesses for the performance of
such contracts." Fullilove v. Klutznick, 448 U.S. 448, 463 (1980); see also 15 U.S.C.
§ 631(f)(2) (explaining the purposes of section 637(a)). In accordance with this
statutory mandate, the SBA in 1968 developed a program "to assist eligible small
disadvantaged business concerns compete in the American economy through business
development." 13 C.F.R. § 124.1 (2005). See generally 13 C.F.R. § 124.1-.603 (2005)
(implementing section 8(a) programs). It is within the context of the SBA's section 8(a)
program that the present case arises.
A
Michael Taylor was one of five DSCC small business specialists responsible for
reviewing government contract solicitations above $10,000 to determine whether the
work solicited could be completed by an SBA-approved section 8(a) contractor. If the
contract solicitation is placed in the section 8(a) program, bidding on the solicitation is
generally limited to participating businesses—i.e., those businesses "unconditionally
05-5018 2
owned and controlled by one or more socially and economically disadvantaged
individuals who are of good character and citizens of the United States, and which
demonstrate[ ] potential for success." 13 C.F.R. § 124.101.
Prior to 1998, C&S Industrial Supply Co. ("C&S") was DSCC's section 8(a)
program supplier of air-duct hose. In 1998, however, C&S "graduated" from the
program. See id. § 124.2 ("A firm that completes its nine year term of participation in
the 8(a) BD program is deemed to graduate from the program."). Upon the
recommendation of Henry Cook, Chief Executive Officer of C&S, Mr. Taylor arranged
for the approval of Capital City to participate in the section 8(a) program. Capital City
thereafter became DSCC's new supplier of air-duct hose.
In 1999, Anita Luich, a DSCC pre-award contracting officer, contacted Capital
City about the procurement of air-duct hose. Capital City in turn approached Flexfab
about manufacturing the hose. Flexfab refused to deal directly with Capital City,
however, and instead offered to supply hose to Capital City through C&S. Mr. Cook
claims to have informed Mr. Taylor at this point that Flexfab would not enter into the
proposed arrangement unless the government agreed to pay Flexfab directly through an
escrow account. According to Mr. Cook, Mr. Taylor promised to contact Capital City to
ensure that any contract provided for the means for payment requested by Flexfab.
There is no evidence of record, however, that Mr. Taylor himself had authority to
execute contracts on behalf of DSCC or that he communicated directly with an
authorized contracting officer or any representative of an authorized contracting officer.
05-5018 3
Ms. Luich ultimately prepared an initial draft of a section 8(a) program contract
between Capital City and the government for the provision of air-duct hose. As
originally drafted, the contract listed the following remittance address:
Capital City Pipes, Inc.
P.O. Box 12368
Tallahassee, FL 32317
By incorporating the provisions of 48 C.F.R. § 52.232-33, the contract also allowed for
payment at the option of the government through an electronic fund transfer ("EFT").
See 48 C.F.R. § 52.232-33(a) (1998) ("Payments by the Government under this
contract, including invoice and contract financing payments, may be made by check or
[EFT] at the option of the Government."). Capital City initially registered its own EFT
information in DSCC's Central Contractor Registration ("CCR") database. Despite a
modification to the remittance address in the contract, as discussed infra, Capital City
never updated the CCR database with new EFT information. The incorporated
regulation made it Capital City's responsibility to do so. See id. § 52.232-33(c) ("In the
event that the EFT information changes, the Contractor shall be responsible for
providing the changed information to the designated payment office(s).").
B
On June 23, 1999, Capital City requested by letter that the remittance address
listed in the contract be changed to:
Capital City Pipes, Inc
C/O ABA #07200052
Old Kent Bank Corp Trust
P.O. Box 144
Grand Rapids, MI 49501-0144
05-5018 4
The letter was incorporated into the contract. On June 29, 1999, DSCC formally
awarded Contract No. SPO740-99-C-1004 to Capital City for payment in exchange for
the supply of air-duct hose. As a supplier without manufacturing capabilities, Capital
City entered into a sub-contract with C&S, which in turn entered into a sub-contract with
Flexfab for production of the hose.
After several conversations between Mr. Taylor and Mr. Cook purportedly aimed
at securing Flexfab's payment under the contract, Capital City requested in a July 1,
1999, letter to Ms. Luich that DSCC make two changes to the June 29 contract:
The adjustments are 1st the remittance address
Capital City Pipes, Inc
C/O ABA #07200052
Old Kent Bank Corp Trust
P.O. Box 144
Grand Rapids, MI 49501-0144
2nd Adjustment
Place of Performance, Place of Shipping & Inspection should read:
Flexfab, Division
8143 Gun Lake Road
Hastings, MI
On September 27, 1999, Malinda Jeffries, a DSCC post-award contracting officer,
issued the following modification in an Amendment of Solicitation/Modification of
Contract form:
The remittance address where cited throughout the contract is hereby
corrected to read as follows:
Old Kent Bank, Corp Trust
CO# ABA# 07200052
P.O. Box 144
Grand Rapids, MI 49501-0144
The record is void of evidence that Ms. Jeffries knew that the modification to the
contract was in any way associated with Flexfab's escrow account. The record reflects
05-5018 5
that neither Mr. Cook, nor Mr. Taylor, nor any Flexfab personnel ever communicated
with the contracting officers to explain and memorialize the alleged demand by Flexfab
that it would perform only if paid directly by the government into an escrow account for
its benefit. In short, Flexfab relied entirely on others, mainly Capital City, to assure that
Flexfab, not Capital City, would receive direct payment for the delivered hose.
Flexfab thereafter delivered air-duct hose to DSCC on several occasions. After
each delivery, Defense Finance and Accounting Services ("DFAS") paid Capital City
electronically, using Capital City's EFT information listed in the CCR database. DFAS
ultimately paid Capital City the full amount due under the contract. Capital City later
became insolvent and never paid Flexfab. On August 25, 2000, Flexfab demanded
payment of $452,031.60 from DSCC for the delivered air-duct hose. DSCC denied the
request. Flexfab thus brought suit in the Court of Federal Claims, claiming that it was
owed the money as an intended third-party beneficiary to the contract between Capital
City and DSCC or, in the alternative, as a direct party to an implied-in-fact contract
between it and DSCC.
C
Turning its attention first to Flexfab's third-party beneficiary theory, the Court of
Federal Claims stated that "unless Flexfab can make a sufficient showing that DSCC
intended to benefit Flexfab, in other words, that some government agent possessing
authority to bind the government agreed to make Flexfab a payee under the Contract,
the government is entitled to judgment as a matter of law." Flexfab, 62 Fed. Cl. at 149
(internal quotation marks omitted). Finding that Flexfab made no such showing, the
court held that "Flexfab's third-party beneficiary claim here falls short because Flexfab
05-5018 6
has failed to present any evidence that a government employee with actual authority
intended to benefit Flexfab through the Capital City contract." Id. at 150. Turning next
to the implied-in-fact contract theory, the Court of Federal Claims stated that "Flexfab
has failed to present evidence related to two essential elements of its implied contract
claim: (1) mutual intent to contract; and (2) actual authority to contract on the part of the
relevant government agents." Id. at 151.
Ruling on cross-motions for summary judgment, the Court of Federal Claims
granted judgment in favor of the government. Flexfab appeals. We have jurisdiction
over the appeal pursuant to 28 U.S.C. § 1295(a)(3).
II
Summary judgment is appropriate when examined in a light most favorable to the
non-movant, the record indicates "that there is no genuine issue as to any material fact
and that the moving party is entitled to a judgment as a matter of law." R. Ct. Fed. Cl.
56(c); see also Fed. R. Civ. P. 56(c) (same). We review the Court of Federal Claims's
decision granting summary judgment de novo, drawing all justifiable factual inferences
in favor of Flexfab. Ammex, Inc. v. United States, 384 F.3d 1368, 1371 (Fed. Cir.
2004). The underlying question of whether Flexfab was a third-party beneficiary under
the contract is a mixed question of law and fact. Glass v. United States, 258 F.3d 1349,
1353 (Fed. Cir. 2001). The existence of an implied-in-fact contract between Flexfab and
the government is a question of fact. Teets v. Chromalloy Gas Turbine Corp., 83 F.3d
403, 408 (Fed. Cir. 1996).
05-5018 7
III
Though not expressly stated as such, the determination by the Court of Federal
Claims that Flexfab was not an intended third-party beneficiary raises a serious issue of
standing on which the court properly focused prior to and independent of the particular
merits of the case. See Steel Co. v. Citizens for a Better Env't, 523 U.S. 83, 102 (1998)
(referring to the issue of standing as a "threshold jurisdictional question"); Warth v.
Seldin, 422 U.S. 490, 498 (1975) ("In essence the question of standing is whether the
litigant is entitled to have the court decide the merits of the dispute or of particular
issues."). Because Flexfab was not a direct party to the contract between Capital City
and DSCC, it has standing to enforce the contract only if it was an intended third-party
beneficiary. See Castle v. United States, 301 F.3d 1328, 1339 (Fed. Cir. 2002) (finding
that plaintiffs were "at most incidental beneficiaries" and as such "lacked standing to sue
for breach of the alleged contract"). We therefore focus first, as did the Court of Federal
Claims, on the issue of whether Flexfab has standing, as an intended third-party
beneficiary of the contract between Capital City and DSCC, to enforce the agreement.
We find that the governing legal principles compel judgment in the government's favor.
A
"In order to prove third-party beneficiary status, a party must demonstrate that
the contract not only reflects the express or implied intention to benefit the party, but
that it reflects an intention to benefit the party directly." Glass, 258 F.3d at 1354; see
also Caguas Cent. Fed. Sav. Bank v. United States, 215 F.3d 1304, 1309 (Fed. Cir.
2000) ("The contract must reflect the express or implied intention of the parties to
benefit the third party." (quotation omitted)); 13 Williston on Contracts § 37:8 (4th ed.
05-5018 8
2000). The intent of the parties to the contract is therefore the cornerstone of a claim
for third-party beneficiary status.
Proof of the requisite intent is no small matter, for the Supreme Court has
recognized the exceptional privilege that third-party beneficiary status imparts. See
German Alliance Ins. Co. v. Home Water Supply Co., 226 U.S. 220, 230 (1912) ("Before
a stranger can avail himself of the exceptional privilege of suing for a breach of an
agreement to which he is not a party, he must, at least, show that it was intended for his
direct benefit."). The privilege should not be granted liberally.
"Exceptional" though it may be, third-party beneficiary status is not reserved for
those parties who benefit expressly under a given contract. We note, too, that "[t]he
intended beneficiary need not be specifically or individually identified in the contract, but
must fall within a class clearly intended to be benefited thereby." Montana v. United
States, 124 F.3d 1269, 1273 (Fed. Cir. 1997). Evidence of intent can be adduced.
Roedler v. Dep't of Energy, 255 F.3d 1347, 1352 (Fed. Cir. 2001). In short, it is
sufficient to ask in the typical case "whether the beneficiary would be reasonable in
relying on the promise as manifesting an intention to confer a right on him." Montana,
124 F.3d at 1273 (citing Restatement (Second) of Contracts § 302(1)(b) cmt. d.).
B
Though a third-party beneficiary of a contract to which the government is a direct
party may assert a claim against the government in accordance with the rules
applicable to third-party claims, the law governing third-party beneficiaries is subject to
the principle that the government can only be bound by those with authorization to do
so. See Trauma Serv. Group v. United States, 104 F.3d 1321, 1325 (Fed. Cir. 1997)
05-5018 9
("A contract with the United States also requires that the Government representative
who entered or ratified the agreement had actual authority to bind the United States.");
City of El Centro v. United States, 922 F.2d 816, 820 (Fed. Cir. 1990) ("the Government
representative whose conduct is relied upon must have actual authority to bind the
government in contract" (internal quotation marks omitted)).
The Supreme Court has warned of the associated risks in dealing with a
government agent:
[A]nyone entering into an arrangement with the Government takes the risk
of having accurately ascertained that he who purports to act for the
Government stays within the bounds of his authority. The scope of this
authority may be explicitly defined by Congress or be limited by delegated
legislation, properly exercised through the rule-making power. And this is
so even though, as here, the agent himself may have been unaware of the
limitations upon his authority.
Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380, 384 (1947). The Supreme Court's
admonition in Federal Crop Insurance is firmly grounded in the public policy goal of
protecting the public treasury from depletion by claims brought pursuant to unauthorized
government contracts. The United States government employs millions of civilian
employees. "Clearly, federal expenditures would be wholly uncontrollable if
Government employees could, of their own volition, enter into contracts obliging the
United States." City of El Centro, 922 F.2d at 820.
A party seeking to enter into an agreement with the government can abate the
risk by taking particular care to insure that it negotiates with a government agent whose
status is that of a "contracting officer." See 48 C.F.R. § 2.101 (2004) ("Contracting
officer means a person with the authority to enter into, administer, and/or terminate
contracts and make related determinations and findings."). A contracting officer is a
05-5018 10
government agent vested with the authority to enter into and sign contracts on behalf of
the government. See 48 C.F.R. § 1.601 (2004) ("Contracts may be entered into and
signed on behalf of the Government only by contracting officers."); John Cibinic, Jr. &
Ralph C. Nash, Jr., Formation of Government Contracts 80 (3d ed. 1998) ("Contracting
officers have the sole authority to legally bind the Government to contracts and contract
modifications."). Given that authority, the contracting officer also has the additional
authority to modify contracts. See Gene Peters v. United States, 694 F.2d 687, 693
(Fed. Cir. 1982) (stating that the delegation of authority to enter into contracts
"necessarily and inherently includes the authority to enter into modification of them as
well"). The contracting officer is thus the authorized face of the government at the
contract formation table.1
C
Flexfab is not unfamiliar with the aforementioned law applicable to third-party
beneficiary status and government contracts. Indeed, it previously filed suit against the
government in the Court of Federal Claims on facts similar to those at issue in this case,
alleging both direct contract and third-party beneficiary theories. See Flexfab, Inc. v.
United States, No. 94-974 (Fed. Cl. Feb. 8, 1996) ("1996 Flexfab Decision"). We find
the court's decision in that case instructive of how we should approach third-party
beneficiary claims where the knowledge and intent of those with authority to contract on
the government's behalf are at issue. The facts of that case are thus relevant, we think,
to the question now before us.
1
In referring to the "contracting officer" throughout, we include, of course,
any person authorized to represent the contracting officer in the process of negotiation,
formation, and modification of the contract.
05-5018 11
Flexfab became a subcontractor to Gladen Industries, Inc. ("Gladen") in 1991.
Id. at 2. Under the subcontract, Flexfab supplied Gladen with vehicle parts necessary
for the performance of Gladen's obligations under three government contracts between
Gladen and the Defense Construction Supply Center ("DCSC"). Pursuant to the three
prime contracts, Gladen was to supply aircraft and submarine parts to DCSC for use in
Operation Desert Storm. Gladen soon became late in making payments to Flexfab, and
Flexfab responded by refusing to ship additional parts to Gladen until Flexfab received a
guarantee of payment. Gladen subsequently fell behind in its deliveries to DCSC.
Flexfab, Gladen and the government thereafter engaged in extensive
negotiations to resolve the standstill in a mutually beneficial manner. Flexfab initially
requested that it be designated the "payee" under the contract. DCSC refused because
formal assignment of Gladen's contract rights would require the government to re-bid
the contract, a time-consuming procedure thought not feasible during wartime. Acting
on a suggestion from Jeffrey Weiden, Flexfab's Treasurer, DCSC instead agreed to
modify the prime contracts to designate Flexfab as the "mailee" for all future payments.
Gladen provided Flexfab the authority to endorse the checks Flexfab received from
DCSC, and Flexfab agreed to deliver all remaining shipments directly to DCSC.
While acceptable to Flexfab in theory, the arrangement quickly soured in
practice. DCSC accepted the shipments from Flexfab but mailed checks to Gladen.
Before Flexfab could recover from Gladen the total amount due for the shipments,
Gladen filed for bankruptcy. Flexfab sued in the Court of Federal Claims to recover
directly from DCSC the difference between the amount DCSC paid Gladen under the
contract and the amount Flexfab recovered from Gladen prior to the bankruptcy filing.
05-5018 12
In support of its motion for summary judgment, Flexfab presented evidence of the
participation of Mrs. A.J. Turner in the three-way negotiations between Flexfab, Gladen
and DCSC. Mrs. Turner was a government contracting specialist with authority to
negotiate agreements on the government's behalf. According to an affidavit of the
Flexfab Accounts Receivable Clerk in charge of Flexfab's subcontract with Gladen,
"Gladen, Flexfab, and the Government . . . entered into a series of discussions and
negotiations . . . . [A]s negotiations became more serious, . . . Mrs. A.J. Turner became
more involved." 1996 Flexfab Decision at 7 (quoting Tebo Aff. ¶ 9). Mr. Widen stated
by affidavit that "Mrs. Turner confirmed that my suggestion was acceptable to the
Government and that this solution would take care of my concerns about payment on
these contracts." Id. at 9 (quoting Weiden Aff. ¶ 8). Flexfab's Accounts Receivable
Clerk also testified that upon receiving an endorsement stamp and with it the authority
to endorse checks made payable to Gladen, he "informed Mrs. Turner at the DCSC via
facsimile . . . that Flexfab had received the endorsement stamp and was ready to
proceed on the contracts as soon as the contract modifications were enacted." Id.
(quoting Tebo Aff. ¶ 12). The Court of Federal Claims was particularly moved by a
facsimile from Flexfab to Mrs. Turner sent together with an accompanying copy of the
letter of agreement between Flexfab and Gladen. The court stated that the evidence
"demonstrates beyond peradventure that DCSC contract officials were aware of the
payment arrangement between plaintiff and Gladen and that plaintiff would ship parts
when the contracts had been modified to designate plaintiff as the 'mailee' for payment."
Id. at 11.
05-5018 13
The Court of Federal Claims thus found dispositive evidence that the contracting
officer knew of the payment arrangement between Flexfab and Gladen and intentionally
modified the contract to designate Flexfab as the "mailee" so as to spur the continued
shipment of parts. The court concluded that "the evidence clearly demonstrates that the
contract modifications were intended to benefit plaintiff" and granted summary judgment
in favor of Flexfab for that reason. Id. at 12-13.
D
Flexfab now argues on appeal from the Court of Federal Claims's decision in this
case that Mr. Taylor's admitted lack of authority to oblige the government in contract is
not relevant because the parties do not dispute that the contract between Capital City
and DSCC was itself authorized by the government. Flexfab further contends that Mr.
Taylor's knowledge that the escrow account specified in the contract modification was
set up by and for Flexfab and that the remittance instructions in the original contract and
contract modification were intended to ensure payment to Flexfab is sufficient to make
Flexfab an intended third-party beneficiary under the contract.
Flexfab's argument is misplaced. Though we previously have held that the
modification of a remittance clause to give a subcontractor control over payments from
the government qualifies the subcontractor as an intended third-party beneficiary, that
rule of law is subject to the principle that only those with authority to contract on the
government's behalf can exhibit the necessary intent to give the subcontractor such
control. See D & H Distrib. Co. v. United States, 102 F.3d 542, 544, 546-47 (Fed. Cir.
1996) (finding a subcontractor to be an intended third-party beneficiary where the
contracting officer approved of an arrangement to make the subcontractor a joint payee
05-5018 14
under the contract). Such intent is determined by looking to the contract and, if
necessary, other objective evidence. In the absence of clear guidance from the contract
language, the requisite intent on the part of the government can be inferred from the
actions of the contracting officer and circumstances providing the contracting officer with
appropriate notice that the contract provision at issue was intended to benefit the third
party. The formation and modification of a government contract may very well involve
many government personnel bearing titles such as contract specialist, contract
negotiator, cost analyst, project manager, engineer, auditor, attorney, and, as is the
case here, small business specialist. Cibinic, Jr. & Nash, Jr., supra, at 80. But the
knowledge of these persons generally, and that of Mr. Taylor here, is not relevant. It is
instead the contracting officer's understanding of the situation that is key.
We thus hold that for third-party beneficiary status to lie, the contracting officer
must be put on notice, by either the contract language or the attendant circumstances,
of the relationship between the prime contractor and the third-party subcontractor so
that an intent to benefit the third party is fairly attributable to the contracting officer.
Borrowing from the Court of Federal Claims's 1996 Flexfab Decision, we agree with the
proposition that when a government agent with authority to contract on the
government's behalf knows of a condition precedent to a third party's performance as a
sub-contractor, such as receipt of payment directly from the government, and
specifically modifies the prime contract so as to ensure the third party's continued
performance, the agent and by implication the government itself necessarily intend to
benefit the third party. That intent gives rise to standing as a third-party beneficiary to
enforce the prime contract.
05-5018 15
In holding as we do, we are mindful of the black letter law that the United States
as a sovereign may not be sued unless it consents. See United States v. Lee, 106 U.S.
196, 207 (1882). As a general rule, the "government consents to be sued only by those
with whom it has privity of contract." Erickson Air Crane Co. v. United States, 731 F.2d
810, 813 (Fed. Cir. 1984); Cienega Gardens v. United States, 194 F.3d 1231,
1239 (Fed. Cir. 1998) ("The effect of finding privity of contract between a party and the
United States is to find a waiver of sovereign immunity."). As a result, a subcontractor
generally cannot bring a direct appeal against the government. The rule, however, is
not without exceptions. United States v. Johnson Controls, Inc., 713 F.2d 1541, 1551
(Fed. Cir. 1983). One such exception allows suit against the government by an
intended third-party beneficiary despite the lack of privity. First Hartford Corp. Pension
Plan & Trust v. United States, 194 F.3d 1279, 1289 (Fed. Cir. 1999). But the
government does not lightly consent to suit. Surely the assurances from a government
agent, having no authority to give them, cannot expose the government to risk of suit for
the nonperformance of an obligation that it did not intentionally accept. We thus are
careful not to open the courthouse doors to those falling victim to the statements of
unauthorized government agents, lest we broaden improperly the government's waiver
of immunity from suit in these cases. See Chancellor Manor v. United States, 331 F.3d
891, 898 (Fed. Cir. 2003) ("Waivers of sovereign immunity are construed narrowly.").
We note, too, that the rule set forth today takes on particular import in the class
of cases to which this one belongs—those arising from the SBA's section 8(a) program.2
2
This is not the first case referencing allegations of the failure by a section
8(a) program contractor to pay a subcontractor. See Arthur Pew Constr. Co., Inc. v.
Lipscomb, 965 F.2d 1559, 1567 (11th Cir. 1992); ATC Petroleum, Inc. v. Sanders, 860
05-5018 16
The section 8(a) program, as previously discussed, was designed to assist minority-
owned businesses. See Cibinic, Jr. & Nash, Jr., supra, at 1428. Those businesses
must qualify for participation and must comply with certain legal requirements.3 By
requiring an authorized government contracting officer to be engaged in the creation of
enforceable obligations under these section 8(a) contracts, we better equip the
government to insure that contracting parties comply with the regulations pertaining to
their participation in the program. The policies promoted by the section 8(a) program
are achieved by proper compliance with all program requirements. Transparency in
dealings among section 8(a) contractors, their suppliers and the government contracting
authorities will avoid the kind of misunderstandings that produced this case.
F.2d 1104, 1115 (D.C. Cir. 1988); U.S. for Use & Benefit of Fred's Plumbing & Heating,
Inc. v. Small Bus. Admin., 807 F. Supp. 675 (D. Colo. 1992); JGB Enters., Inc. v. United
States, 63 Fed. Cl. 319 (2004); FloorPro, Inc., ASBCA No. 54143 (Mar. 30, 2004);
Foremost Solutions, Inc., IBCA Nos. 4520 and 4521 (Sept. 8, 2004).
3
For example, to advantage itself of the benefits of the program, a section
8(a) program contractor, both now and at the time the section 8(a) contract was
awarded in the present case, "must perform certain percentages of work with its own
employees." 13 C.F.R. § 124.510(a) (2005). "In the case of a contract for supplies or
products (other than procurement from a non-manufacturer in such supplies or
products), the concern will perform at least 50 percent of the cost of manufacturing the
supplies or products (not including the costs of materials)." 13 C.F.R. § 125.6(a)(2)
(2005). In the case of a non-manufacturer, such as Capital City, the section 8(a)
program contractor must "supply the end item of a small business manufacturer or
processor made in the United States," unless it obtains a waiver of the requirement. 13
C.F.R. § 121.406(b)(1)(iii) (2005).
Flexfab apparently delivered all of the air-duct hose required under a contract
awarded to Capital City for the supply of the hose. The record does not indicate
whether Flexfab itself was a small business such as would satisfy the non-manufacturer
rule. At least one legal commentator has surmised wrongdoing. See 19 No. 4 Nash &
Cibinic Rep. 19 (2005) (concluding that the section 8(a) contractor in Flexfab was
merely a "front" and that the contractor/subcontractor arrangement was in violation of
the small business policies underlying the program). However, the issue of proper
compliance with the requirements of the section 8(a) program in the contract in suit is
not before us. We thus express no opinion on that issue.
05-5018 17
With the rule of law in hand, we now turn to the facts of the present case.
Neither the contract nor the modification shows intent by the contracting officers to
benefit Flexfab by linking in any way the remittance address to Flexfab. Looking
beyond the contract itself, Flexfab can point to no evidence of record that establishes
such intent. Indeed, the evidence is to the contrary. Ms. Luich, the pre-award
contracting officer, testified that she had no knowledge of an agreement regarding an
escrow arrangement between Capital City and Flexfab. (Joint App. at 122.) Ms.
Jeffries, the post-award contracting officer, testified that she did not know why Capital
City requested the contract modification. Furthermore, there is no evidence that anyone
from Flexfab spoke directly to the contracting officers about Flexfab's desire to be paid
directly by the government, nor is there any evidence that Mr. Taylor communicated this
desire to the contracting officers. Flexfab apparently trusted Capital City to assure that
Flexfab got paid for the goods it delivered. We thus agree with the Court of Federal
Claims that the "contracting officers, the only individuals involved with authority to
contract on behalf of the government, could not have intended to benefit Flexfab
because they had no knowledge of the purpose of the remittance address in both the
Contract and the Modification." Flexfab, 62 Fed. Cl. at 148-49.
For the reasons expressed in this opinion, we conclude that without a sufficient
evidentiary showing by Flexfab of intent on the part of the contracting officers and thus
the government itself to benefit Flexfab directly, it cannot establish standing to enforce
the contract between Capital City and DSCC as a third-party beneficiary. In the future,
Flexfab and other subcontractors would do well to heed the advice of leading
commentators on the issue: "Never—never—never rely on other Government
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employees such as small business specialists to arrange these transactions." 19 No. 4
Nash & Cibinic Rep. 19 (2005). Otherwise, a subcontractor may very well realize to its
detriment "the risk of having accurately ascertained that he who purports to act for the
Government stays within the bounds of his authority." Fed. Crop Ins., 332 U.S. at 384.
IV
Flexfab's alternate theory that a binding implied-in-fact contract existed between
it and the government fails for the same reason. Flexfab must show (1) mutuality of
intent to contract; (2) consideration; (3) an unambiguous offer and acceptance; and
(4) actual authority on the part of the government's representative to bind the
government. Schism v. United States, 316 F.3d 1259, 1278 (Fed. Cir. 2002) (en banc).
Flexfab therefore must prove that one with authority to bind the government intended to
do so by contracting directly with Flexfab. Having failed on this point, Flexfab cannot
prevail under a direct contract theory.
V
Because Flexfab did not present evidence sufficient to create a question of fact
that it was an intended third-party beneficiary of the contract between Capital City and
DSCC or that it had an implied-in-fact contract with the government, it has no standing
to sue under either theory. We thus affirm the decision of the Court of Federal Claims.
AFFIRMED
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