Flexfab, L.L.C. v. United States

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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