Federal Circuit Roundup
 
March 20, 2001
 
David Scott "Dave" Black- Northern Virginia

Don't Rely On Government Estimates In IDIQ Contracts

One of the most important changes in federal procurement in the late 1990s was the increased use of “indefinite-delivery, indefinite quantity” contracts, or “IDIQs.” The key problem with IDIQ contracts is their very indefiniteness. Typically, IDIQ contracts do not commit the government to buy anything more than a minimum dollar amount of goods or services; revenues, if they are to come, instead must flow from later orders. To compete for these uncertain contracts, contractors almost always must commit to deep discounts, even though the economies of scale are uncertain.

To mitigate the risks, government agencies often include estimates of future orders in their IDIQ contracts, so that contractors have some clearer sense of the potential future flow of orders. The Federal Circuit’s decision in Travel Centre, however, may mean that those estimates are basically worthless.

The Travel Centre case presented particularly stark facts. The GSA solicitation for travel services estimated orders of $2.5 million, but guaranteed only $100. Before bids were due, GSA learned that at least half of the estimated orders would never materialize, but GSA never informed the bidders. After Travel Centre won the award, the contractor realized only a small fraction of the promised business, was forced out of business, and the contract eventually was terminated.

None of these facts swayed the Federal Circuit. Despite many cases that have held that the government cannot act in bad faith, and must, under the duties of good faith and fair dealing, share its “superior knowledge” with its contractors, the Federal Circuit ruled in Travel Centre that the contractor erred in relying on the government’s estimates. It was enough, the court held, that the contractor received the $100 in revenues promised by the contract.

Perhaps the most extraordinary aspect of this case was the reaction of the federal procurement bar. Responses poured in over the Public Contract Law listserv (which can be accessed through Jerry Walz’s popular Public Contract Law Web site, http://www.pubklaw.com). One member of the procurement bar called the decision “terrible”; another wrote that she was “flabbergasted” and “dismayed” by the decision. One government attorney wrote that he hoped that government attorneys would “keep this decision to ourselves,” so that government contracting officials will not feel emboldened by the decision to offer less than full and timely information to prospective bidders.

The decision in Travel Centre may force agencies to offer higher minimum quantities in order to attract bidders to IDIQs, because, under the decision, the nonbinding estimates offered by agencies mean essentially nothing. That, in turn, means that agencies will have more difficulty fielding multiple-award IDIQs - IDIQ contracts awarded to many contractors at the same time, to allow for competition on future orders - because agencies will need to guarantee higher minimums to each of many awardees. Finally, the Travel Centre decision weakens the concept of good faith or fair dealing in government contracting. While it seems likely that the Federal Circuit intended none of these outcomes when it issued the Travel Centre decision, all may well flow from the court’s startling decision. David J. Barram, Administrator, General Services Administration v. Travel Centre, No. 00-1054, -1126.