Can a contractor rely on the minimums in an IDIQ pact?

A company official asked the following question: It is common for agencies to specify minimum and maximum anticipated quantities in their indefinite-quantity contracts in order to give the offerors guidance on how to price their proposals. To what extent is the government bound by these estimates? Can a contractor rely on the minimums stated in these contracts?

In most cases contractors may reasonably expect government agencies to procure at least those quantities specified as minimums in their indefinite-delivery indefinite-quantity contracts. Most agencies take considerable care in estimating the minimums and maximums set forth in their solicitations and contracts.

However in some cases an agency may fail to purchase a specified minimum. In those cases the agency will be required to put the contractor in as good condition financially as it would have been in if the minimum quantity had been purchased.

In general a contract will not be enforceable unless each party provides adequate consideration to support the other party's commitment. In this context "consideration" refers to the actions and promises that each side brings to the table when it enters an enforceable contract. When both sides provide adequate consideration the contract is said to be "mutual" and is enforceable by either party.

When the government purchases goods or services on an indefinite-quantity basis it must identify a reasonable minimum guaranteed quantity in the solicitation or the contract will not be considered enforceable. If the contract does not include a sufficient minimum it will fail for want of adequate consideration. See e.g. Willard Sutherland & Co. v. United States 262 U.S. 489 (1923). "[A] Guaranteed Minimum Quantity clause [serves] to ensure mutuality of obligations and to make the contract enforceable by both parties to it." Mason v. United States 615 F.2d 1343 1346 n.5 (Ct.Cl. 1980).

In contrast it should be noted that a "requirements contract" does not include a guaranteed minimum quantity. Instead the government commits itself to purchase from the contractor the entire quantity required by the specified user or users of the contract. In this case the contractor is not guaranteed a specific minimum quantity. However the contractor is guaranteed the right to provide the entire quantity needed by the specified user(s) whatever that turns out to be.

When the government enters into an IDIQ contract it promises to purchase at least the specified minimum quantity from the contractor. If it fails to do so it may be said to have breached the contract entitling the contractor to recover monetary damages. However the damages will be limited to the amount necessary to make the contractor whole. The contractor may not be entitled to recover the entire contract price if it will result in a windfall profit.

The U.S. Court of Appeals for the Federal Circuit discussed the relevant considerations in Maxima Corp. v. United States 847 F.2d 1549 (Fed. Cir. 1988). In that case the contractor was required to provide typing photocopying and related services on an IDIQ basis subject to specified minimums and maximums. During the contract period the contractor maintained sufficient personnel in a stand-by capacity to meet all specified minimums even though the orders placed by the agency fell far short of the minimums.

After the contract was completed the agency tried to avoid responsibility for the minimum quantities by arguing that the contract had been constructively terminated for the convenience of the government.

As discussed by the court almost all government contracts include a standard termination-for-convenience clause under which the agency may terminate a contract whenever necessary while limiting its responsibility to the contractor to whatever costs have been reasonably incurred to that date plus appropriate profit or "fee " for work completed. Often when the government fails to fulfill its obligations under a contract the result is described as a constructive termination for convenience and the contractor's remedy is limited accordingly even though the government may not have invoked the clause properly.

However in the Maxima case the court refused to apply the theory of constructive termination for convenience to the agency's failure to purchase the specified minimum quantities. It said the contractor had performed all its obligations by maintaining its personnel in a stand-by mode and therefore was entitled to the full contract price.

On the other hand in PHP Healthcare Corp. ASBCA No. 39207 91-1 BCA Paragraph 23 647 the Armed Services Board of Contract Appeals (ASBCA) found that a contractor that had not received the guaranteed minimums was not necessarily entitled to recover the entire contract price. Thus any savings accrued as a result of the government's failure to purchase the minimum quantities would have to be taken into account. ASBCA remanded the case to the parties to negotiate a fair settlement.

As seen in these cases an offeror should be entitled to rely on the minimum quantities identified in a typical IDIQ contract. If the agency does not purchase the guaranteed minimums it still will be required to put the contractor in the same position financially as if the minimum had been ordered.

However the contractor cannot use these principles to secure a windfall profit. A fair result for both sides is what is required.

Peckinpaugh is a member of the government contracts section of the law firm of Winston & Strawn Washington D.C. Readers are encouraged to submit topics by e-mail to carl@carl.com or by voice-mail to (703) 876-5151 extension 2965.