B-181675, MAR 3, 1975

B-181675: Mar 3, 1975

Additional Materials:

Contact:

Edda Emmanuelli Perez
(202) 512-2853
EmmanuelliPerezE@gao.gov

 

Office of Public Affairs
(202) 512-4800
youngc1@gao.gov

CONTRACTING AGENCY'S DECISION NOT TO EXERCISE OPTION FOR ENGINEER MAINTENANCE FUNCTIONS OF SATELLITE COMMUNICATIONS STATION ON BASIS THAT PERFORMANCE IN-HOUSE WOULD BE IN NATIONAL INTEREST IS NOT SUBJECT TO LEGAL OBJECTION AND DOES NOT AFFORD CONTRACTOR BASIS FOR CONTRACT CLAIM. SINCE UNDER CONTRACT OPTION PROVISION SUCH NOTICE IS NOT REGARDED AS OBLIGING AGENCY TO ACTUALLY EXERCISE OPTION. PROVISION WAS MADE IN SECTION J FOR NOTICE TO THE CONTRACTOR 90 DAYS IN ADVANCE OF JUNE 30 OF EACH YEAR IN WHICH THERE WAS ANY INTENTION TO RENEW THE CONTRACT. RADIATION WAS GIVEN NOTICE BY LETTER DATED APRIL 30. THE CONTRACTING OFFICER ALSO WAS ADVISED THAT ACTION SHOULD BE TAKEN TO EXTEND THE CONTRACT PERFORMANCE TO JULY 31.

B-181675, MAR 3, 1975

CONTRACTING AGENCY'S DECISION NOT TO EXERCISE OPTION FOR ENGINEER MAINTENANCE FUNCTIONS OF SATELLITE COMMUNICATIONS STATION ON BASIS THAT PERFORMANCE IN-HOUSE WOULD BE IN NATIONAL INTEREST IS NOT SUBJECT TO LEGAL OBJECTION AND DOES NOT AFFORD CONTRACTOR BASIS FOR CONTRACT CLAIM, DESPITE FACT THAT NOTICE OF INTENT TO EXERCISE OPTION HAS BEEN FURNISHED CONTRACTOR, SINCE UNDER CONTRACT OPTION PROVISION SUCH NOTICE IS NOT REGARDED AS OBLIGING AGENCY TO ACTUALLY EXERCISE OPTION.

FOX INTERNATIONAL, INC.:

ON JUNE 30, 1973, THE PROCUREMENT DIRECTORATE, SACRAMENTO ARMY DEPOT, DEPARTMENT OF THE ARMY, AWARDED CONTRACT NO. DAAG08-C-0245 TO RADIATION SYSTEMS, INCORPORATED (RADIATION), IN THE TOTAL AMOUNT OF $92,699, FOR THE FURNISHING OF NONPERSONAL TECHNICAL SERVICES FOR THE ENGINEER MAINTENANCE FUNCTIONS OF EQUIPMENT AND SYSTEMS OF THE SATELLITE COMMUNICATIONS STATION, CAMP ROBERTS, CALIFORNIA, DURING THE PERIOD JULY 1, 1973, THROUGH JUNE 30, 1974. SECTION J OF THE CONTRACT GAVE THE GOVERNMENT AN OPTION TO RENEW FOR TWO ADDITIONAL YEARS. PROVISION WAS MADE IN SECTION J FOR NOTICE TO THE CONTRACTOR 90 DAYS IN ADVANCE OF JUNE 30 OF EACH YEAR IN WHICH THERE WAS ANY INTENTION TO RENEW THE CONTRACT. RADIATION WAS GIVEN NOTICE BY LETTER DATED APRIL 30, 1974, THAT THE GOVERNMENT INTENDED TO EXERCISE ITS OPTION TO EXTEND THE TERM OF THE CONTRACT FOR AN ADDITIONAL 1 -YEAR PERIOD.

BY MESSAGE DATED JUNE 17, 1974, THE U.S. ARMY COMMUNICATIONS COMMAND CONUS (USACC-CONUS) ADVISED THE CONTRACTING OFFICER THAT IT HAD MADE A DETERMINATION TO PERFORM THE REQUIRED SERVICES IN-HOUSE. THE CONTRACTING OFFICER ALSO WAS ADVISED THAT ACTION SHOULD BE TAKEN TO EXTEND THE CONTRACT PERFORMANCE TO JULY 31, 1974, IN ACCORDANCE WITH THE CONTINUITY OF SERVICES CLAUSE OF THE CONTRACT WHICH PROVIDED THAT THE CONTRACTOR AGREED TO PROVIDE PHASE-IN PHASE-OUT SERVICES FOR UP TO 30 DAYS AFTER THE EXPIRATION OF THE CONTRACT PERIOD FOR THE PURPOSE OF TRAINING GOVERNMENT PERSONNEL TO TAKE OVER CONTRACT PERFORMANCE WITHOUT LOSS OF CONTINUITY. IN RESPONSE TO THIS DIRECTIVE, THE CONTRACTING OFFICER, BY TELEGRAM DATED JUNE 20, 1974, NOTIFIED THE SUCCESSOR CONTRACTOR, FOX INTERNATIONAL, WHICH ON MAY 31, 1974, HAD PURCHASED THE ASSETS OF RADIATION'S WESTERN OPERATIONS, THAT THE GOVERNMENT WOULD NOT EXERCISE ITS OPTION TO RENEW THE CONTRACT FOR 1 ADDITIONAL YEAR AND THAT A UNILATERAL MODIFICATION WOULD BE ISSUED TO PROVIDE PHASE-IN PHASE-OUT SERVICES FOR THE PERIOD JULY 1 THROUGH JULY 31, 1974.

FOX THEN PROTESTED THE ARMY'S FAILURE TO EXTEND THE CONTRACT FOR A YEAR, CONTENDING THAT UNDER THE UNIQUE TERMS OF THE OPTION PROVISION IN THE SUBJECT CONTRACT THE ISSUANCE OF THE LETTER OF INTENT AND THE ARMY'S CONDUCT SUBSEQUENT THERETO RESULTED IN THE ARMY'S BEING OBLIGATED EITHER TO EXERCISE THE OPTION OR TO PAY DAMAGES FOR BREACH OF CONTRACT. IT IS FOX'S POSITION THAT ONCE THE NOTICE OF INTENT IS ISSUED THE OPTION CLAUSE SETS FORTH A DEFINITE PROCEDURE FOR PRICE NEGOTIATION AND PROVIDES THAT THE ARMED SERVICES PROCUREMENT REGULATION DISPUTES PROCEDURE IS TO BE INVOKED IF AFTER GOOD FAITH NEGOTIATIONS THE PARTIES ARE UNABLE TO AGREE ON PRICE. FOX CONTENDS THAT AFTER ISSUANCE OF THE LETTER OF INTENT THE ARMY FAILED TO CONDUCT GOOD FAITH NEGOTIATIONS LEADING TO EXERCISE OF THE OPTION CONTRACT, BUT INSTEAD OBTAINED A PRICE FOR A FOLLOW-ON CONTRACT SOLELY FOR THE PURPOSE OF SUPPORTING A DETERMINATION THAT THE WORK COULD BE ACCOMPLISHED MORE ECONOMICALLY IN-HOUSE. FOX ALSO ASSERTS THAT A VALID COST COMPARISON WAS NOT MADE BECAUSE THE IN-HOUSE ESTIMATE WAS BASED UPON LOWER STAFFING REQUIREMENTS, AND THAT IN ANY EVENT THE OBTAINING OF THE REQUIRED SERVICES IN-HOUSE IS CONTRARY TO APPLICABLE DEPARTMENT OF DEFENSE INSTRUCTIONS AND ARMY REGULATIONS WHICH SET FORTH THE DOD POLICY TO "RELY ON THE PRIVATE ENTERPRISE SYSTEM *** TO THE MAXIMUM EXTENT ***."

THE ARMY'S APRIL 30, 1974, LETTER NOTIFIED RADIATION THAT PURSUANT TO PARAGRAPH J-2 OF THE CONTRACT, "THE GOVERNMENT INTENDS TO EXERCISE ITS OPTION TO EXTEND THE TERM OF THE CONTRACT FOR A PERIOD OF ONE (1) YEAR ***." IT HAS BEEN RECOGNIZED THAT SUCH WORDS OF FUTURE INTENTION MAY OPERATE AS A CURRENT EXERCISE OF AN OPTION UNDER AN APPROPRIATELY WORDED CONTRACT OPTION PROVISION AND THAT SUBSEQUENT ACTIONS OF THE PARTIES MAY INDICATE THAT THE OPTION WAS REGARDED AS ACTUALLY HAVING BEEN EXERCISED. BONDE V. WEBER, 6 ILL. 2D 365, 128 N. E. 2D 883 (1955); APPEAL OF MILLS MFG. CORP., ASBCA NO. 10416, 66-1 BCA 5450 (1966). HOWEVER, WE DO NOT BELIEVE THAT UNDER THE CONTRACT CLAUSE USED HERE THE ARMY'S LETTER OF INTENT OR SUBSEQUENT BEHAVIOR CAN BE REGARDED AS EFFECTING AN OPTION EXERCISE OR RESULTING IN ANY LEGAL OBLIGATION ON THE PART OF THE ARMY TO DO SO.

PARAGRAPH J-2 OF THE CONTRACT STATES:

"(A) AT THE OPTION OF THE GOVERNMENT, THE CONTRACTOR SHALL NEGOTIATE IN GOOD FAITH WITH THE GOVERNMENT FOR THE CONTINUATION OF SERVICES OF THE GENERAL TYPE HEREUNDER USING AS A BASIS FOR THE NEGOTIATION THE TERMS AND CONDITIONS OF THIS CONTRACT; PROVIDED THAT, THE CONTRACTING OFFICER NOTIFIES THE CONTRACTOR IN WRITING OF THE INTENTION TO NEGOTIATE FOR SUCH CONTINUATION AT LEAST NINETY (90) CALENDAR DAYS PRIOR TO THE 30TH DAY OF JUNE OF THE CURRENT FISCAL YEAR, EXCEPT THAT NO SERVICES MAY BE CONTINUED BEYOND 30 JUNE 1977. IF THE PERFORMANCE OF SERVICES IS TO BE CONTINUED THROUGH THE EXERCISE OF THIS OPTION, THE CONTRACTING OFFICER SHALL NOTIFY THE CONTRACTOR OF THE DATE ON WHICH SUCH PERFORMANCE IS TO BEGIN.

"(B) THE CONTRACTOR MAY REFUSE TO CONTINUE THE SERVICES OF THE GENERAL TYPE HEREUNDER BEYOND THE 30TH DAY OF JUNE OF THE CURRENT FISCAL YEAR, PROVIDED THAT, THE CONTRACTOR NOTIFIES THE CONTRACTING OFFICER IN WRITING OF THE INTENTION NOT TO NEGOTIATE FOR SUCH CONTINUATION AT LEAST ONE HUNDRED AND TWENTY (120) CALENDAR DAYS PRIOR TO THE 30TH DAY OF JUNE OF THE CURRENT FISCAL YEAR.

"(C) NOTWITHSTANDING THE FOREGOING, THIS CONTRACT MAY BE EXTENDED, AT THE OPTION OF THE GOVERNMENT, UNDER THE TERMS AND CONDITIONS HEREOF FOR ONE MONTH FOR FINAL CONTRACT ADMINISTRATION AND SIMULTANEOUS COOPERATION BY THE CONTRACTOR WITH ANY OTHER CONTRACTOR WHO MAY BE AWARDED A CONTRACT FOR A PERIOD COMMENCING WITH THE EXTENSION, PROVIDED THAT, THE CONTRACTING OFFICER NOTIFIES THE CONTRACTOR IN WRITING OF THE EXERCISE OF THIS OPTION AT LEAST THIRTY (30) CALENDAR DAYS PRIOR TO THE 30TH DAY OF JUNE OF THE CURRENT FISCAL YEAR.

"(D) WITHIN 30 DAYS FROM THE CONTRACTOR'S RECEIPT OF THE CONTRACTING OFFICER'S INTENTION TO EXERCISE AN OPTION FOR RENEWAL, THE CONTRACTOR SHALL SUBMIT A PROPOSAL FOR THE CONTINUATION OF THE CONTRACT PERFORMANCE FOR THE ENSUING 12 MONTHS PERIOD. THE PARTIES AGREE TO NEGOTIATE IN GOOD FAITH WITHIN THE COST LIMITATIONS FOR SUCH OPTION PERIOD AS SET FORTH IN THIS ARTICLE TO FORMULATE AN EQUITABLE COST, FOR EACH EXTENDED YEARLY PERIOD OF PERFORMANCE. THE PARTIES FURTHER AGREE THAT THE RATIO OF PROFIT TO COSTS FOR SUCH PERIODS OF PERFORMANCE OF THE CONTRACT SHALL NOT EXCEED THAT RATIO NEGOTIATED FOR THE INITIAL CONTRACT PERIOD.

"(E) IN THE EVENT THAT THE PARTIES FAIL TO AGREE ON COSTS FOR AN OPTION PERIOD PRIOR TO EXPIRATION OF THE CURRENT CONTRACT TERM, THE CONTRACTING OFFICER, IN WRITING, MAY DIRECT THE CONTRACTOR, SUBJECT TO THE AVAILABILITY OF FUNDS, TO CONTINUE CONTRACT PERFORMANCE FOR AN ADDITIONAL 90 DAYS PERIOD, AND THE CONTRACTOR SHALL CONTINUE TO PERFORM WITHIN THE GENERAL SCOPE OF THE CONTRACT AS DIRECTED. DURING THE FIRST SIXTY (60) DAYS OF THIS EXTENSION PERIOD THE PARTIES SHALL CONTINUE NEGOTIATIONS TOWARD AN AGREEMENT ON COSTS AND PROFIT FOR THE ONE YEAR OPTION PERIOD. FAILURE TO AGREE ON COST AND PROFIT FOR THE ONE YEAR OPTION DURING THE FIRST SIXTY (60) DAYS OF THE YEARLY EXTENSION SHALL RESULT IN THE CONTRACTING OFFICER RENDERING A UNILATERAL DECISION AS TO WHAT ESTIMATED COST AND PROFIT IS REASONABLE UNDER THE CIRCUMSTANCES FOR THE ONE YEAR EXTENSION AND SAID DECISION SHALL CONSTITUTE A DECISION RENDERED UNDER A DISPUTE CONCERNING A QUESTION OF FACT WITHIN THE MEANING OF AND GOVERNED BY THE TERMS OF THE 'DISPUTES' CLAUSE OF THE CONTRACT. PENDING RESOLUTION OF THE DISPUTE THE CONTRACTOR SHALL CONTINUE PERFORMANCE FOR THE EXTENDED PERIOD OF 90 DAYS PLUS AN ADDITIONAL 30 DAYS AS PROVIDED IN 'CONTINUITY OF SERVICES' PG. 30 FROM THE EXPIRATION OF DATE OF THE CURRENT CONTRACT TERM UNLESS SOONER TERMINATED UNDER THE PROVISIONS OF THE CONTRACT."

A CAREFUL READING OF THIS PARAGRAPH INDICATES THAT IT DOES NOT PROVIDE THE GOVERNMENT WITH THE USUAL UNILATERAL RIGHT TO EXERCISE AN OPTION. RATHER, IT SETS FORTH CERTAIN PROCEDURAL STEPS WHICH MAY BE INITIATED AT THE OPTION OF THE GOVERNMENT AND WHICH MAY, BUT NEED NOT, RESULT IN THE EXTENSION OF THE CONTRACT PERIOD.

THUS, SUBPARAGRAPH (A) PERMITS THE GOVERNMENT TO COMMENCE GOOD FAITH NEGOTIATIONS WITH THE CONTRACTOR, PROVIDED IT NOTIFIES THE CONTRACTOR IN A TIMELY MANNER OF ITS "INTENTION TO NEGOTIATE" FOR THE CONTINUATION OF SERVICES AND PROVIDED THAT THE CONTRACTOR HAD NOT PREVIOUSLY NOTIFIED THE GOVERNMENT PURSUANT TO SUBSECTION (B) OF ITS INTENTION NOT TO NEGOTIATE. UPON RECEIPT OF THE GOVERNMENT'S NOTICE OF INTENT TO NEGOTIATE, THE CONTRACTOR IS REQUIRED BY SUBSECTION (D) TO SUBMIT A PROPOSAL FOR CONTINUATION OF CONTRACT PERFORMANCE WHICH IS TO BE FOLLOWED BY GOOD FAITH NEGOTIATIONS. IF THE PARTIES FAIL TO AGREE ON COSTS FOR THE OPTION PERIOD, THE CONTRACTING OFFICER MAY DIRECT THE CONTRACTOR TO PERFORM FOR A PERIOD OF 90 DAYS AFTER EXPIRATION OF THE CURRENT CONTRACT PERIOD, AND IF THE PARTIES STILL DO NOT AGREE DURING THE FIRST 60 DAYS OF THAT EXTENSION PERIOD, THE CONTRACTING OFFICER SHALL RENDER A UNILATERAL DECISION ON THE MATTER WHICH IS TO BE GOVERNED BY THE DISPUTES CLAUSE OF THE CONTRACT. THE CONTRACTING OFFICER EXTENDS THE CONTRACT PERIOD FOR THOSE 90 DAYS, THE CONTRACTOR, PENDING RESOLUTION OF THE DISPUTE, IS REQUIRED TO PERFORM FOR THOSE 90 DAYS PLUS AN ADDITIONAL 30 DAYS FOR PHASE-IN PHASE-OUT SERVICES IN ACCORDANCE WITH SUBPARAGRAPH (C), UNLESS PERFORMANCE IS SOONER TERMINATED.

ACCORDINGLY, IT APPEARS THAT THE ISSUANCE OF A LETTER OF INTENT DOES NOT OBLIGATE THE ARMY TO EXTEND THE CONTRACT FOR A YEAR, BUT INSTEAD MERELY SETS IN MOTION CERTAIN NEGOTIATION PROCEDURES WHICH CAN RESULT IN A ONE- YEAR EXTENSION IF THE ARMY AND CONTRACTOR AGREE ON TERMS, AND WHICH CAN RESULT IN AN EXTENSION OF NOT MORE THAN 120 DAYS IF AGREEMENT IS NOT REACHED. ALTHOUGH THE CONTRACT CLAUSE DOES OBLIGATE THE ARMY TO ENTER INTO GOOD FAITH NEGOTIATIONS ONCE A LETTER OF INTENT IS ISSUED AND A CONTRACTOR PROPOSAL IS RECEIVED, WE DO NOT BELIEVE THAT THE CLAUSE REQUIRES THE ARMY TO ACTUALLY EXERCISE THE OPTION WHEN, SUBSEQUENT TO ISSUANCE OF THE LETTER OF INTENT, THE ARMY IN GOOD FAITH DETERMINES THAT IT WOULD NOT BE IN THE GOVERNMENT'S BEST INTEREST TO EXTEND THE CONTRACT FOR A YEAR. THIS DETERMINATION COULD RESULT FROM SUCH THINGS AS A FINDING THAT THE SERVICES WERE AVAILABLE FROM THE COMPETITIVE MARKET PLACE AT A LOWER PRICE OR FROM A DETERMINATION THAT THE SERVICES SHOULD BE PERFORMED IN-HOUSE.

HERE WE THINK THE RECORD ADEQUATELY ESTABLISHES THAT THE ARMY, SUBSEQUENT TO ISSUING THE LETTER OF INTENT TO RADIATION, MADE A GOOD FAITH DETERMINATION THAT THE INTERESTS OF THE GOVERNMENT REQUIRED THAT THE SERVICES BE PERFORMED IN-HOUSE. THE RECORD SHOWS THAT THE ARMY NOTIFIED RADIATION OF ITS INTENT TO EXTEND THE CONTRACT FOR ONE YEAR (NEITHER RADIATION NOR FOX OBJECTED TO THE ARMY'S GIVING ONLY 60 RATHER THAN 90 DAYS NOTICE), BUT THAT RADIATION DID NOT RESPOND WITH A PROPOSAL WITHIN 30 DAYS AS REQUIRED BY SUBPARAGRAPH (D). INSTEAD, A REPRESENTATIVE OF FOX SUBMITTED A PRICE QUOTATION BY TELEPHONE ON JUNE 3, 1974 AND LATER CONFIRMED THE QUOTATION IN WRITING. SHORTLY THEREAFTER, THE ARMY, WITHOUT HAVING ENGAGED IN ANY FURTHER NEGOTIATION WITH FOX, DECIDED NOT TO EXERCISE THE OPTION AND TO PERFORM THE WORK IN HOUSE. FOX ASSERTS THAT THE ARMY ACTED IN BAD FAITH BECAUSE IT SOLICITED A PRICE QUOTATION FROM FOX FOR USE IN DETERMINING WHETHER THE SERVICES SHOULD BE PERFORMED IN- HOUSE WITHOUT DISCLOSING THIS INFORMATION TO FOX AND BECAUSE IT FAILED TO MAKE A PROPER COST COMPARISON WITH THAT INFORMATION. FOX STATES THAT THESE FAILURES CONSTITUTE "A LACK OF GOOD FAITH AND A MATERIAL BREACH OF THE CONTRACT."

IT IS NOT DISPUTED THAT THE ARMY WAS ACTING IN GOOD FAITH AT THE TIME IT ISSUED THE LETTER OF INTENT. THE RECORD DOES REFLECT THAT SUBSEQUENT TO ISSUANCE OF THE LETTER A STUDY WAS MADE WHICH SUGGESTED THE POSSIBLE COST EFFECTIVENESS OF AN IN-HOUSE OPERATION. THE ARMY WAS AWARE OF THIS STUDY WHEN IT REQUESTED A QUOTATION FROM FOX, AND INDEED THE RECORD SHOWS THAT ONE OF THE REASONS THE ARMY WANTED THE QUOTATION WAS FOR USE IN MAKING A COST COMPARISON OF IN-HOUSE AND CONTRACT SERVICES FOR FISCAL YEAR 1975. ALTHOUGH THE ARMY DID NOT EXPLICITLY INFORM FOX THAT THE QUOTATION WOULD BE USED FOR THAT PURPOSE, THE ARMY DOES POINT OUT THAT RADIATION PERSONNEL HAD BEEN "IN CONSTANT CONTACT WITH RESPONSIBLE" ARMY OFFICIALS AND "KNEW OF THE GOVERNMENT STUDY AND THE PROBABILITY THAT A DECISION FOR IN-HOUSE OPERATION WAS IMMINENT." WHILE THE RECORD IS NOT CONCLUSIVE ON THIS POINT, WE THINK THAT FOX MUST BE CHARGED WITH KNOWLEDGE THAT ITS QUOTATION WOULD AT LEAST BE CONSIDERED BY THE ARMY IN DETERMINING, PURSUANT TO ASPR 1 1505(C)(III)(1974 ED.), WHETHER IT WOULD BE ADVANTAGEOUS TO THE GOVERNMENT TO EXERCISE THE OPTION. FURTHERMORE, WE THINK IT IS CLEAR THAT THE QUOTATION WAS NOT SOLICITED SOLELY FOR COST COMPARISON PURPOSES, SINCE IT WOULD HAVE BEEN USED AS THE STARTING POINT FOR NEGOTIATIONS HAD THE ARMY NOT DECIDED TO PROVIDE THE SERVICES IN HOUSE. UNDER THESE CIRCUMSTANCES, WE DO NOT BELIEVE THE ARMY ACTED IN BAD FAITH BY FAILING TO INFORM FOX THAT ITS QUOTATION WOULD BE USED FOR COMPARISON PURPOSES. WITH REGARD TO THE ARMY'S ACTUAL DECISION TO PROVIDE THE SERVICES IN-HOUSE, THE RECORD SHOWS THAT THE PROCURING ACTIVITY INITIALLY ATTEMPTED TO OBTAIN AUTHORITY TO PERFORM THE SERVICES IN-HOUSE ON THE BASIS OF SAVINGS OF APPROXIMATELY $79,000, WHICH FOX QUESTIONS. HOWEVER, THE RECORD ALSO SHOWS THAT THE DECISION NOT TO EXERCISE THE OPTION WAS ULTIMATELY APPROVED ON THE BASIS OF NATIONAL SECURITY CONSIDERATIONS. IN THIS REGARD, FOX QUESTIONS WHETHER THE ARMY'S ACTION IS COMPATIBLE WITH ARMY POLICY OF RELYING ON THE PRIVATE ENTERPRISE SYSTEM FOR THE PROVISION OF REQUIRED SERVICES TO THE MAXIMUM EXTENT FEASIBLE. DOD DIRECTIVE 4100.15, "COMMERCIAL OR INDUSTRIAL ACTIVITIES," DATED JULY 8, 1971, STATES THAT WHERE IT IS NECESSARY FOR THE GOVERNMENT TO CONDUCT A COMMERCIAL OR INDUSTRIAL ACTIVITY FOR PURPOSES OF COMBAT SUPPORT OR FOR INDIVIDUAL AND UNIT RETRAINING OF MILITARY PERSONNEL OR TO MAINTAIN OR STRENGTHEN MOBILIZATION READINESS, SUCH ACTION MAY BE TAKEN. FURTHER, DOD INSTRUCTION 4100.33, "COMMERCIAL OR INDUSTRIAL ACTIVITIES-OPERATION OF," DATED JULY 16, 1971, PROVIDES THAT COST COMPARISONS ARE NOT REQUIRED WHEN THE SERVICE MUST BE PROVIDED FROM IN-HOUSE GOVERNMENT SOURCES IN ORDER TO MEET MILITARY READINESS REQUIREMENTS. THE DEFENSE COMMUNICATIONS AGENCY HAS PROVIDED OUR OFFICE DOCUMENTATION JUSTIFYING THE ACTION TAKEN BY THE ARMY ON THE BASIS OF THE ABOVE POLICIES.

UNDER ALL OF THESE CIRCUMSTANCES, THERE IS NO BASIS FOR OUR OFFICE TO OBJECT TO THE REFUSAL OF THE ARMY TO EXERCISE THE CONTRACT OPTION. FURTHERMORE, SINCE THE FOX CLAIM FOR DAMAGES IS NECESSARILY PREDICATED ON A BREACH OF CONTRACT THEORY AND SINCE, AS INDICATED ABOVE, THE ARMY WAS NOT OBLIGATED TO EXERCISE THE OPTION, THERE IS NO BASIS FOR CONCLUDING THAT FOX IS ENTITLED TO DAMAGES. ACCORDINGLY, BOTH THE CLAIM AND THE PROTEST ARE DENIED.