Government Contracts Monitor

Wrong FAR Clause In Utilities Contract Is Just Water Under The Bridge

September 4, 2013

A recent Court of Federal Claims case reminds us that the clauses included in your contract might not actually be the terms governing your arrangement with the Government. And as the Government learned the hard way in Bay County, FL v. United States, No. 11-157C (Fed. Cl. Aug. 14, 2013), this is may even be true when the Government is the party that chose the contract clauses.

Bay County, Florida has been providing water and sewer services to Tyndall Air Force Base since 1966 under a series of contracts. In 1997, Bay County and the Air Force executed a bilateral modification to the sewer contract, explicitly adding FAR 52.241-8, the FAR clause for unregulated utility service providers (no one could find the modified water contract, although both Bay County and the Air Force insisted there was one). Starting in October 2007, Bay County attempted to pass on rate increases for water and sewer services. In 2009 and 2010, the Air Force unilaterally modified the water contract to reflect minor rate increases, but far less than what Bay County had invoiced. The Air Force refused to pay the invoiced rate increases, claiming that Bay County did not follow FAR 52.241-8. Bay County sued the Air Force in the Court of Federal Claims.

The Court of Federal Claims determined that Bay County was a regulated utility. The Air Force argued, however, that even if Bay County was a regulated utility, it was nonetheless bound by FAR 52.241-8’s provisions governing unregulated utilities because that was the FAR clause in the contracts. The Court of Federal Claims disagreed. As the Court explained, because Bay County was a regulated utility, the Air Force’s contract should have included FAR 52.241-7 (applying to utility rate increases for regulated utilities) and not FAR 52.241-8 (applying to unregulated utilities). Applying the Christian doctrine – which requires that otherwise mandatory contract clauses need not be physically incorporated into the contract and may be imposed as a matter of law – the Court deemed FAR 52.241-7 incorporated into the Air Force’s contract “in place of the improper clause, FAR 52.241-8, which is physically present.” Ultimately, the Court ruled that “Bay County has adhered to the requirements of FAR 52.241-7 and Florida law in setting and revising its utility rates. The Air Force’s unilateral modifications of the Water Contract in 20009 and 2010 . . . are invalid and cannot be given effect.” The Court then granted Bay County’s motion for summary judgment and set the matter to determine the amount of Bay County’s damages at a later date.

The takeaways from this case are: (1) no matter what FAR clauses a contract actually has in it, the Court can decide to read the “proper” FAR clauses into the contract as a matter of law; and (2) the Government may be found liable for not complying with the proper FAR clauses.

Michael J. Schrier is the attorney responsible for the content of this article.