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The rules of the road: department of defense transportation contracts.

Unambiguous laws and contracts serve an important dispute-avoidance function. When parties to a business deal have a clear and detailed understanding of their mutual legal rights and obligations, the likelihood of a costly dispute--in terms of both business disruption and litigation expense--decreases dramatically. Put differently, room for disagreement in a contractual relationship is more likely to exist where both parties have at least some basis to argue that either the law or contract terms support their respective positions. And that is true whether or not the agreement in question is an ordinary commercial contract or a government contract.

With respect to Federal government contracts, the deck is often stacked in favor of the government and against the private contractor. There are plenty of sound and widely-accepted policy reasons for that state of affairs. The consequence of that reality, however, is that contractors must have a thorough understanding of the law governing their relationships with the Federal government. Similarly, when Federal government officials are clear regarding the parameters of the contracting, performance, and disputes processes, costly disagreements may well be avoided.

Department of Defense (DOD) transportation contracts, in particular, present a unique challenge because they are not necessarily governed by the Federal Acquisition Regulation (FAR) and other procurement statutes and regulations familiar to government contract professionals. Thus, both government contracting officers and private sector contract managers--not to mention their attorneys--are less likely to be familiar with the rules of the road for government transportation contracts. Moreover, the law governing DOD transportation contracts, in several respects, is far from clear.

Accordingly, this article aims to provide an overview of the basic DOD transportation contracting rules and principles, with the goal that, when everyone is on the same page, cooperation is enhanced and disputes are minimized.

GOVERNMENT CONTRACT BASICS

The FAR establishes, codifies, and publishes uniform policies, procedures, and rules for all "acquisitions" (except where expressly excluded) by Federal executive agencies. The FAR, in turn, defines "acquisition" as "the acquiring by contract with appropriated funds of supplies or services ... by and for the use of the Federal Government through purchase or lease..."

In general, the formation of a government contract, like an ordinary commercial contract, requires a mutual intent to contract, including an offer, acceptance, and consideration. A contract with the United States also requires that the government representative who enters into an agreement have actual authority to bind the government. Pursuant to the FAR, only a government official possessing a contracting officers warrant is authorized to bind the United States to a contract.

Offerors or prospective offerors may challenge a variety of government procurement actions by a bid protest with either the Government Accountability Office (GAO) or the United States Court of Federal Claims (COFC). The GAO's jurisdiction is governed by the Competition in Contracting Act (OCA), which authorizes the GAO to decide protests concerning alleged violations of procurement statutes or regulations. That statute also authorizes the GAO to consider protests involving objections to solicitations for bids or proposals, for proposed contracts, or objections to proposed awards of contracts. Similarly the COFC has jurisdiction to hear suits by contractors objecting to a solicitation by a Federal agency for bids or proposals for a proposed contract or to a proposed award or the award of a contract or any alleged violation of statute or regulation in connection with a procurement or a proposed procurement.

Disputes regarding the performance of a DOD contract (e.g., suits for breach of contract or claims for additional compensation) may be heard either by the COFC or the Armed Services Board of Contract Appeals (ASBCA). In such cases, the COFC has jurisdiction, depending upon the type of contract, under the Tucker Act and/or the Contract Disputes Act (CDA). The ASBCA hears contract disputes under the CDA. The United States Court of Appeals for the Federal Circuit is charged with resolving appeals from both the COFC and the ASBCA.

Whether and to what extent these various statutes apply to DOD transportation contracts is addressed in more detail below.

GOVERNMENT TRANSPORTATION CONTRACTS--AN OVERVIEW

A brief review of the statutes and regulations underpinning government transportation contracting us useful.

The Transportation Act of 1940 amended the Interstate Commerce Act (ICA), a statute originally enacted in 1887, with the goal of eliminating discrimination in the provisioning of interstate transportation services.

Under Section 321 of the Transportation Act of 1940 (codified, as amended, at 49 U.S.C. [section][section] 10721 and 13712), carriers may provide transportation services to the government at no charge or below a published tariff. In that regard, 49 U.S.C. [section] 10721 provides that "[a] rail carrier providing transportation or service for the United States Government may transport property or individuals for the United States Government without charge or at a rate reduced from the applicable commercial rate." Section 13712 is identical except that the word "rail" does not precede each reference to the word "carrier."

Transportation under 49 U.S.C. [section][section] 10721 and 13712 is obtained through a rate tender process under which the government may use a commercial bill of lading, a government bill of lading (GBL), or a tender agreement.

Section 322 of the Transportation Act (codified at 31 U.S.C. [section] 3726) addresses audit, payment, and claims procedures for services provided under the Act. In particular, that section provides that the Administrator of General Services may conduct pre-or post-payment audits of transportation bills of any Federal agency and "shall adjudicate transportation claims which cannot be resolved by the agency procuring the transportation services, or the carrier or freight-forwarder presenting the bill." Any claim, however, "shall be allowed only if it is received by the Administrator not later than 3 years (excluding time of war) after the later of" several dates, including, for example, the date of accrual of the claim, the date payment for the transportation is made, and the date a refund for an overpayment for the transportation is made.

The ICA also provides for a federal "civil action to recover charges for transportation or service provided by [a common] carrier," including "transportation for the United States Government" (see 49 U.S.C [section] 14705(f)). Instead of pursuing an administrative claim, a carrier may sue the government in federal court.

For civilian agencies, regulations and procedures governing the bill of lading, documentation, payment, and audit of transportation services acquired by the government are prescribed in 41 C.F.R. Part 102-118 (Transportation Payment and Audit). For DOD shipments, corresponding guidance is contained in the Defense Transportation Regulation (DTR), 4500.9-R, Part II.

The FAR, in part 47, also prescribes policies and procedures for "[a]cquiring transportation or transportation-related services by contract methods other than bills of lading, transportation requests, transportation warrants, and similar transportation forms." In particular, the FAR provides that "[t]ransportation and transportation services can be obtained by acquisition subject to the FAR or by acquisition under 49 U.S.C. 10721 or 49 U.S.C. 13712." The FAR, however, does not regulate the acquisition of transportation or transportation-related services when the bill of lading serves as the contract.

FAR [section] 47.200 contains procedures for the acquisition of freight transportation and transportation-related serviced by sealed bid or negotiated contracts, but does nor apply to: (1) the acquisition of freight transportation from domestic or international air carriers and international ocean carriers (which are covered by FAR subparts 47.4 and 47.5, respectively); (2) freight transportation acquired by bills of lading; (3) household goods for which rates are negotiated under 49 U.S.C 10721 and 13712; or (4) contracts at or below the simplified acquisition threshold. FAR [section] 47.200(e) specifically notes that "[a]dditional guidance for DoD acquisition of freight and passenger transportation is in the Defense Transportation Regulation."

THE DEFENSE TRANSPORTATION REGULATION

The FAR describes the DTR as establishing "uniform procedures and documents for the generation, documentation, communication, and use of transportation information, thus providing the capability for control of shipments moving" via the Defense Transportation System (DTS). Contracting activities are responsible for ensuring that the DTR's requirements are included in appropriate contracts for all applicable shipments and enforcing these requirements with regard to shipments under their control.

In terms of acquisition rules, Chapter 201 of the DTR provides that "[t]raffic managers and shipping activities will seek full and open competition to the maximum extent possible from qualified carriers." The DTR specifically references both FAR and non-FAR procurements, and explains that "DOD uses a number of different procurement instruments to purchase transportation and related services." Those instruments, according to the DTR, "include FAR contracts, Bill of Lading (BL), government transportation requests and similar transportation forms." The DTR instructs that the "decision as to the procurement instrument will be based on the needs of the customers, duration of the requirement, value of the transportation services provided, and the cost of implementing the procurement process relative to the cost of services acquired."

With respect to FAR contracting, the DTR provides that "a warranted contracting officer can procure transportation and related services using a FAR instrument tailored to the customers needs." The DTR explains that such FAR instruments "create enforceable contractual obligations between the carrier and the DOD activity." In addition, they allow "the providing of services not available under tenders tariffs, and BLs" and arc "best where there is a requirement for recurring traffic for a long period, large volume, or an oversized movement."

The DIR is difficult, if not impossible, to reconcile with DOD Instruction 4500.57 (March 18, 2008), which provides that "[t]he acquisition of transportation and related services shall be obtained using guidance contained in the Federal Acquisition Regulation ... and the DOD FAR Supplement ... unless a deviation is necessary to meet mission needs." Thus, the instruction suggests that the more cumbersome FAR contracting procedures are all but mandatory, whereas the DTR provides military agencies with great flexibility in selecting a procurement instrument.

Both the DTR and DOD Instruction 4500.57 distinguish between FAR and non-FAR procurement instruments, such as tenders of service and bills of lading, but with the Instruction emphasizing that non-FAR procurement instruments "shall only be used in limited situations when FAR procurements cannot meet customer requirements." With respect to both FAR and non-FAR procurements, the Instruction provides that "procurements will be performance-based, mode-neutral, and time-definite; use best value acquisition processes and full and open competition; and comply with source preference laws."

The DTR also contains three curious statements that appear erroneous. First, the DTR notes that the GAO generally does not consider bid protests of transportation procurements char are based upon render rates. Second, the DTR specifies that FAR part 33--the section of the FAR that governs protests and contract disputes and implements the CDA-covers transportation contracts. Third, the DTR provides that "[t]enders are not contracts," but rather "are a carriers offer to provide services at the quoted rate" and the "con tract is created after die [transportation officer] offers the movement and the carrier accepts the movement under a BL." As explained in more detail below, none of those statements is free from doubt. This article addresses each statement in order and in the context of the broader topic involved.

BID PROTESTS

The GAO repeatedly has held that the term "procurement" as used in OCA is broad enough to include the process of acquiring transportation services by the government. The GAO has recognized, for example, that, although case law on DTR procurements is somewhat sparse, the law is clear that in any competitive federal procurement, potential contractors must be informed of the basis for selection and how their offers or tenders will be evaluated.

Accordingly, the GAO has held that, under GIGA, a would-be contractor may file a protest objecting to agency actions that result in the "award" of instruments that are not in themselves contracts, such as some rate tenders that become binding contracts when a bill of lading is issued. In other words, the term "procurement" may include the process of acquiring transportation services by the government, notwithstanding that the acquisition of such services is conducted with a vehicle generally exempt from the FAR. The GAO also has held that it has jurisdiction to hear protests of solicitations and contract awards issued under 49 U.S.C. [section] 10721 because it is a procurement statute in that it authorizes the government to obtain transportation services from common carriers at rates below those in their published tariffs. The same b presumably true regarding awards issued under 49 U.S.C. [section] 13712. Thus, many GAO decisions appear to contradict the DTR's statement that the GAO will not hear protests involving tenders.

On the other hand, the GAO has held that spot movements are exempt from its review because they do not have sufficient indicia of a formal procurement. A spot movement is a one-time shipment of a commodity on a single bill of lading that requires special equipment or services not otherwise provided by tariff or special rate tenders or covered by a con tract or long-term tender. Under spot-movement solicitations, the tender is viewed as a continuing offer to perform transportation, and the issuance of a GBL is viewed as a basic transportation contract movements are exempt from the FAR.

What is less clear is whether the COFC possesses jurisdiction over a challenge to a spot-movement procurement, although at least one COFC decision appears to assume (without directly addressing the issue) chat the court, indeed, does have jurisdiction. Given the COFC's and the Federal Circuit's repeated references in various cases to the breadth of the definition of the term "procurement/ the courts are unlikely to decline jurisdiction.

CONTRACT DISPUTES

The CDA generally covers disputes regarding contracts (or the procurement of goods and services. In addition to other provisions and requirements, that statute mandates that, for CDA covered contracts, contractors follow an administrative disputes process prior to pursuing a dispute with respect to such a contract in the COFC or before the ASBCA. Where a contract is not covered by the CDA, the COFC ordinarily possesses exclusive jurisdiction over contract disputes in excess of $10,000, pursuant to the Tucker Act, 28 U.S.C. [section] 1491 (a). For government contract disputes (not covered^ by the CDA) less than $10,000, the Federal district courts and the COFC possess concurrent jurisdiction (that is, either court may hear the case).

In a 1995 case, Sherwood Van Lines, the Federal Circuit addressed whether the CDA covered CBLs. The contractor in that case was a common carrier that provided transportation services to the Navy pursuant to the Transportation Act of 1940, and a GBL served as the contract between the parties. The Federal Circuit found that the transportation services in question, were provided under 49 U.S.C. [section] 10721 (the Transportation Act of 1940, as amended) and that Congress had set up a system for paying carriers for providing the services and a mechanism for resolving disputes under 31 U.S.C. [section] 3726. The Federal Circuit concluded that "Congress did not intend the general provisions of the [CDA] to supplant the pre-existing system of administrative review specifically designed for transportation services subject to Section 3726."

In arriving at that decision, however, the court limited its decision to "cases in which the government obtains transportation services from a common carrier pursuant to 49 U.S.C. [section] 10721 and in which the GBL constitutes the contract between the parties," but did not address ''cases in which transportation services arc obtained through other means, such as contracts for continuing transportation services over a period of time." In sum, Sherwood Van Lines stands for the proposition that government transportation by spot movement is not subject to the CDA.

A number of years later, in the Inter-Coastalcase, the Federal Circuit examined the same question with respect to tender agreements for trucking services covering a three-year period. As in Sherwood Van Lines, the contractor seeking relief in Inter-Coastal acknowledged that it was providing transportation services pursuant to 49 U.S.C. [section][section] 10721 and 13712. Moreover, while performing the tender agreements, the contractor utilized the administrative dispute resolution procedures established by the Transportation Act at 31 U.S.C [section] 3726, but then later sued the government for breach of contract under the CDA. in the COFC.

The Federal Circuit ultimately upheld the COFC's decision to dismiss the contractors suit, on the basis that the ICA, and not the CDA, governed the parties' contract dispute. The court of appeals explained that "Congress intended to have the ICA govern all actions seeking the payment of money for the charges owed on contracts for transportation services between common carriers and the government." By its terms, the ICA applies to a "carrier providing transportation or service," 49 U.S.C. [section] 14705(a), including "Government transportation," who brings an "action to recover charges for transportation or service," and "payment of the rate for the transportation or service involved," 49 U.S.C. [section] 1475(f) (1).

Indeed, according to the Federal Circuit, none of the statutes at issue, including the administrative dispute framework set up by the Transportation Act (codified at 31 U.S.C. [section] 3726), draws a distinction between contract vehicles "based on the number of deliveries, the complexity of the transportation agreement, whether an agreement resulted from the procurement process or instead from a 'spot movement/ or whether a GBL or a tender agreement (or both) formed the parties1 contract." In short, held the court, "the unambiguous text of the ICA and its amendments, including the [three-year statute of] limitations period set forth therein, exclusively govern the jurisdictional time frame in which a common carrier must file a claim for charges against the government." To be dear, a transportation contractor may sue the government in court for breach of contract (or other relief under a contract) pursuant to the Tucker Act, but not under the CDA. (In addition to the applicable statute of limitations, there are a number of other consequences that flow from the fact that transportation contracts are not covered by the CDA, but chose issues are beyond the scope of this article.)

Notwithstanding the Federal Circuits clear holdings in both Inter-Coastal and Sherwood Van Lines--and the fact that the ASBCA is bound by such precedent--the ASBCA has explained that, in those cases, "the transportation services were provided pursuant to the Transportation Act of 1940" and payment disputes were specifically required by that. Act to be processed under 31 U.S.C [section] 3726 and its implementing regulations. The ASBCA has refused to apply the Federal Circuits decisions to FAR procurements. In other words, the ASBCA has held that the government's arguments based upon the statutes, regulations, and case law relating to the ICA and Transportation Act are not relevant to FAR-contracts.

Accordingly, the ASBCA has concluded, for example, that where the Surface Deployment and Distribution Command (SDDC) structured certain transportation contracts as FAR-based agreements, the ASBCA possessed jurisdiction to hear the contract dispute pursuant to the CDA. In. sum, in the ASBCA, the rule is that the administrative dispute resolution procedure in 31 U.S.C'. [section] 3726 is part of the Transportation Act, and therefore applies only when transportation services are provided under that Act (e.g., pursuant to 491LS.C.[section][section] 10721, 13712). As a related matter, Transportation Act-based services have been limited to services provided by way of tender agreements and CBLs.

Thus, contrary to the DTR, the law remains unclear regarding precisely when the CDA applies to transportation contracts, if ever, although according to one COFC decision "[t]he affirmative language of the ICA, and Inter-Coastal, clearly establishes that the ICA is the sole-statutory authority governing jurisdiction in this Court for all charges or payments of money owed under a transportation service contract." In that case, notably, the COFC specifically addressed claims arising out of a transportation service contracts with the SDDC.

Also contrary to the DTR, courts have found m exception to the general rule that a GBL consummates a contract in a non-FAR transportation procurement--i.e., where the tender agreement appears to function like a requirements contract. For example, in one ease, the Military Traffic Management Command publicly solicited tenders for the scheduled moves of perishable goods to certain government facilities. The tenders were 10 be effective for a two-year period. The government asked the contractor lo agree to schedule changes but at no cost to the government. The transportation contractor refused the government's request, and the government resolicited the work.

The Federal Circuit acknowledged that a tender for transportation ordinarily is completed through the issuance of a GBL Nevertheless, the court concluded that the governments acceptance of the contractors tender gave rise to a binding contract. The court agreed that a contract was created because the tender agreement included a clause providing that the carrier was entitled to all available military requirements for the period of the tender. Thus, the court held that the tender agreement was essentially a conventional requirements contract, in which one party agrees to supply as much of a good or service as is required by the other party, and, in exchange, the other party promises to obtain its goods or services exclusively from the first party. As noted above, this seems to contradict the DTR's statement that tenders are not contacts.

Similarly, the ASBCA has concluded that GBLs may be used in conjunction with tender contracts and are not confined to use with one-time spot movements.

In sum, a government transportation contract may be formed in a number of circumstances, including: (1) when the government as shipper tenders property to a carrier; (2) when a GBL is issued; or (3) when the carrier tenders the property to the government as consignee. As a related matter, a transportation contract may consist of a GBL, a combination of a DOD tender and a GBL, or a combination of" a tariff and GBL. Where, for example, there is an agreement for continuing transportation services over a period of time, the GBL may not constitute the contract between the carrier and the government agency, but simply may serve as the means by which the agency exercises its right to procure services under a binding, long-term contract. In any event, assuming the existence of a contract, the Tucker Act should provide the COFC with jurisdiction to entertain any related monetary dispute, irrespective of whether the contract is covered by the CDA.

CONCLUSION

Unlike typical government procurement contracts, government contracts for transportation services are not necessarily governed by the FAR and the CDA, but rather by a complex web of transportation statutes and regulations. The interaction of the relevant transportation statutory and regulatory provisions with traditional Federal procurement rules--particularly as interpreted and applied by the GAO and the courts--require special care and attention on the part of government contracting personnel, irrespective of whether such personnel work for DOD or a contractor. Moreover, the rules governing transportation procurement, particularly with respect to certain dispute issues, remain unsettled, or appear to be inconsistent with the 01 R. The bottom line, though, is that when both parties to a contract are aware of the rules of the road, and the associated pitfalls, they should be better able to avoid disputes.

Matthew H. Solomson, Sidley Austin LLP

Mr. Solomson recently jointed Sidley Austin LLP from the US Department of Justice, where he frequently represented DOD components in government contract cases before the US Court of Federal Claims and the US Court of Appeals for the Federal Circuit. At Sidley Austin LLP, Mr. Solomson focuses his practice on government contracts counseling and litigation. He may be reached at msolomson@sidley.com
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Author:Solomson, Matthew H.
Publication:Defense Transportation Journal
Date:Feb 1, 2012
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