Court of Federal Claims Rules on Requirements Contract

In Horn v. United States, the plaintiff is a dental hygienist who claims that the U.S. Federal Bureau of Prisons (the BoP) breached a contract for the provision of dental hygiene services that it entered into in 2005 with her.  According to the complaint, Horn was to perform such services at a federal prison in Marion, Illinois.  Horn alleges that the BoP breached the contract by failing to utilize her in accordance with the contract’s estimated quantity schedule and that it was negligent in estimating its needs when it issued the contract solicitation.  She sued for lost wages.  The government moved for summary judgment, arguing that it was not bound by its estimate of services needed, and on May 3, 2011, the Court of Federal Claims granted the government’s motion to dismiss.

The contract provided that Horn would provide up to a maximum of 1,560 one-hour dental hygiene sessions over the term of the contract.  Horn was thus entitled to a fixed price of $49.920.  However, the contract was specifically designated a requirements contract and contained the following provision:

(a) This is a requirements contract for the supplies or services specified, and effective for the period stated, in the Schedule. The quantities of supplies or services specified in the Schedule are estimates only and are not purchased by this contract. Except as this contract may otherwise provide, if the Government’s requirements do not result in orders in the quantities described as “estimated” or “maximum” in the Schedule, that fact shall not constitute the basis for an equitable price adjustment.

The contract further specified that the purpose of the contract’s schedule was simply to estimate the BoP’s requirements in excess of the services it furnished itself with its own in-house hygienist.

One month after Horn was awarded the contract, the BoP informed her that it was hiring an in-house hygienist and would not longer need her services.  She had provided only 130 sessions.  While Horn regarded this as a breach of contract, the BoP believed otherwise since it was not bound by the estimates provided in the contract.  Horn pointed to deposition testimony and argued that the BoP was in the process of hiring an in-house hygienist before it awarded the contract to her.  She argued that the BoP had breached a duty of good faith in contracting by failing to provide a reasonable estimate of the services for which it was contracting.

The Court first determined that, despite the unambiguous boilerplate provision q uoted above, the contract in question was not a requirements contract because a requirements contract demands exclusivity and here the BoP committed itself only to use Horn for dental hygiene services beyond those that it could furnish itself.  According to the Court, the parties intended to form a requirements contract but failed to do so.  

The Court next considered whether the contract was enforceable as an indefinite quantities contract.  However, because the contract failed to specify a minimum quantity of services to be provided, it could not qualify as an indefinite quantities contract.  The Court thus concluded that the contract, being neither a requirements contract nor an indefinite quantities contract, was unenforceable for lack of mutuality and consideration.  The good news?  Horn gets to keep what she was paid for the 130 sessions she did perform. 

The Court then proceeds to lament the governments practice of continuing to use a standard form that appears to innocent third parties to be a contract when it is not.  According to the Court, the government has been on notice since 1929 that this kind of form contract is unenforceable.  

Oh, come on!!  Do justice, sir, do justice!  Cardozo would have no difficulty implying any terms necessary to render the contract enforceable.  It makes no sense to permit the government to use a form contract that will mislead people into thinking they are due a set wage — the contract specified $49,920 — and let it escape paying them that wage on the basis of legal doctrine so complex that the government’s lawyers either cannot grasp it or are willfully exploiting it to take unfair advantage of their contracting partners. 

[JT]