B-232357, Oct 10, 1989, 69 Comp.Gen. 13

B-232357, Oct 10, 1989, 69 Comp.Gen. 13

APPROPRIATIONS/FINANCIAL MANAGEMENT - Claims Against Government - Unauthorized contracts - Quantum meruit/valebant doctrine PROCUREMENT - Payment/Discharge - Unauthorized contracts - Quantum meruit/valebant doctrine A claim against the Army, arising from its continued use of rental automated data processing equipment and services for nearly a year after the applicable contract had expired, may be paid on a quantum meruit/quantum valebant basis. However, since the equipment and services at issue could have been procured under a non-mandatory General Services Administration (GSA) Federal Supply Schedule, the amount of the claim is reduced to that which would have been paid had the items been properly procured under the relevant schedule.

Mohawk Data Science Corporation:

The Department of the Army has asked whether it may pay the claim of Mohawk Data Science Corporation for the rental of automated data processing equipment which the Army continued to use for nearly a year after its contract with Mohawk had expired. Army's doubt concerning its ability to pay Mohawk Data Service Corporation stems from the absence of a formal, written contract between Army and Mohawk for the equipment rental during the period in question. We conclude that Mohawk's claim should be paid on a quantum meruit and quantum valebant basis. However, we also conclude that the Army may not pay Mohawk more than it would otherwise have paid for rental of the equipment used, had Army procured those services, using the GSA's Federal Supply Schedule. Since the amount invoiced by Mohawk exceeds that amount, the claim is reduced accordingly.

BACKGROUND

Beginning in 1976, the Army Office of Procurement, Letter- kenny Army Depot (LEAD), Chambersburg, Pennsylvania, was tasked to procure automated data processing equipment for the headquarters offices of the Army Material Research and Development Command (AMRDC), in Alexandria, Virginia. Originally, LEAD carried out that assignment by leasing the equipment from Mohawk Data Science Corporation /1/ pursuant to a GSA Federal Supply Schedule, which GSA has informally advised us was and still is "non-mandatory," rather than "mandatory," in nature. For the next 12 years ending with a contract covering the year from October 1985 through September 1986, LEAD renewed, on an annual basis, its contract with Mohawk.

Sometime after LEAD renewed Mohawk's contract for fiscal year 1986, the Army instructed LEAD that it would not be responsible for this assignment in the future. However, the Army informed neither AMRDC nor Mohawk of this change. When the fiscal 1986 contract period ended, AMRDC assumed that LEAD would see to the renewal of Mohawk's contract and accordingly continued to use Mohawk's equipment. Mohawk also apparently assumed that LEAD was still responsible for contract renewal, and attempted to contact LEAD to obtain a renewal contract. In February 1987, Mohawk anxious about the continued absence of a written agreement to cover fiscal year 1987 contacted AMRDC to discover the reason for the delay in forwarding a renewal contract. In June 1987, Mohawk and AMRDC finally established that LEAD was no longer responsible for procuring AMRDC's automated data processing equipment. According to the submission, during this period, and through the end of August 1987, AMRDC continued to use Mohawk's equipment. On September 1, 1987, AMRDC discontinued its use of the Mohawk equipment, and formally requested Mohawk to remove it.

Although AMRDC agrees with Mohawk that the government received and accepted the use and benefit of this equipment during fiscal year 1987, and it presently has sufficient funds with which to pay for it, AMRDC is uncertain of the proper amount to pay Mohawk, as well as its legal authority to make any payment. AMRDC's doubts regarding how much to pay derive from two facts. First, Mohawk has submitted invoices to AMRDC totalling $53,586.21, which exceed both the amount charged by Mohawk for rental of its equipment during fiscal 1986 ($29,505.96), and the amount for which AMRDC could have obtained this same equipment from Mohawk during fiscal year 1987 under the relevant Federal Supply Schedule ($40,634.52) had AMRDC actually attempted to procure it. /2/ Second, there was no express contract in effect between the government and Mohawk during the period in question, and that omission cannot be remedied by resort to the theory of ratification. See e.g., 64 Comp.Gen. 727 (1985). For this reason, AMRDC suggests that this Office consider approving payment to Mohawk under the principles of quantum meruit and quantum valebant.

DISCUSSION

This Office has long held that the principles of quantum meruit and quantum valebant authorize reimbursement to a firm whose performance has benefitted the government-- even though the government did not have an enforceable contract with the firm. E.g., 64 Comp.Gen. 727 (1985); 63 Comp.Gen. 579, 584 (1984). The criteria for payment under these equitable principles normally include four elements. Id. See also B-226433-O.M., April 15, 1987. First, there must be a threshold determination that the goods or services for which payment is sought would have been a permissible procurement, had the proper procedures been followed. Second, the government must have received and accepted a benefit. Third, the firm must have acted in good faith. And fourth, the amount to be paid must not exceed the reasonable value of the benefit received.

Based on the submission, we can easily conclude that the first three of these elements have been satisfied here. First, there is no question that AMRDC could have permissibly contracted for Mohawk's automated data processing equipment rental and maintenance services for fiscal 1987, had the proper procedures been followed as had in fact been the case for the preceding 12 years. Second, the Army admits that AMRDC had the use and benefit of those services from October 1986 through August 31, 1987. Third, there are sufficient grounds to conclude that Mohawk acted in good faith. For example, Mohawk had been providing these services to AMRDC for the preceding 12 years. The provision of these services to AMRDC in fiscal year 1987 simply constituted a continuation of that relationship, and it was the lack of coordination within the Army that gave rise to the failure to contract for the use of the equipment in fiscal year 1987. Cf. B-226433-O.M., April 15, 1987.

The fourth element required for a quantum meruit or quantum valebant payment is that the amount to be paid represents the reasonable value of the benefit received. In a number of previous cases, we have held that where the goods or services at issue were required to be purchased under a "mandatory" GSA Federal Supply Schedule, quantum meruit/ quantum valebant payments may not exceed the schedule prices. E.g., 63 Comp.Gen. 579 (1984). The issue here is whether the same would be true where-- as here-- the schedule was "non-mandatory" or discretionary in nature.

To understand this aspect of the problem, it is necessary to know a little about the nature and origin of GSA's Federal Supply Schedules. GSA enters into requirements contracts for items commonly used by government agencies. Those contractors and their goods and services are then listed on GSA's Federal Supply Schedules. See Federal Property Management Regulations, 41 C.F.R. Subpt. 101-26.4 (1988). The contracts and schedules specify whether agencies are required mandatory schedules or merely permitted non-mandatory schedules to purchase the items included from the contractors listed on particular schedules. 41 C.F.R. Sec. 101-26.401-1. Where the items at issue are contained in a non-mandatory schedule, the decision whether to purchase an item from a contractor included on the schedule or to proceed with a new solicitation is a business judgment committed to the discretion of the contracting officer, and will not be questioned absent a clear showing of abuse of discretion. B-210490, Feb. 7, 1983, 83-1 CPD Para. 135. For mandatory schedules, however, contracting officers generally have no real discretion on whether or not to use the schedules. See 41 C.F.R. Secs. 101-26.401-1 through 101-26.401-5 (1988). Cf., e.g., B-228302, Jan. 13, 1988 urgent or small requirements; B-141880-O.M., Feb. 12, 1960 exigent circumstances required immediate delivery to a remote location which could not have been accomplished under the relevant schedule. For this reason, this Office has previously held that purchasing officers have no legal authority to obligate the government to pay more for an item than the amount for which it could have been purchased under a mandatory Federal Supply Schedule. E.g., 30 Comp.Gen. 23, 24 (1950). That being the case, we have also held that there is no legal authority for a quantum meruit/quantum valebant payment to exceed the price that would have been paid, had the item been properly purchased under a mandatory schedule. 30 Comp.Gen. 23, 24 (1950); 26 Comp.Gen. 866 (1947).

Although our reasoning is somewhat different, our conclusion is the same where the items at issue could have been purchased under a non mandatory schedule. The principles of quantum meruit and quantum valebant exist to provide an equitable basis upon which to make a payment where, through administrative error, no express contract was created. In keeping with the equitable basis for such payments, the amount to be paid is usually determined by reference to the fair or reasonable value of the benefits received. We can think of no more appropriate method by which to determine the reasonable value of a particular good or service than to refer to the prices which emerge from a competitive procurement for the same item or type of items-- which is how the Federal Supply Schedule contract prices are derived. B-232660, Jan. 10, 1989, citing the Competition in Contracting Act, 41 U.S.C. Sec. 259(3) (Supp. IV 1986); Federal Acquisition Regulation, 6.102(d)(3). In essence, the operation of this limitation upon quantum meruit/quantum valebant payments simply recognizes the fact that the prices derived under the Federal Supply Schedules are, by definition, fair and reasonable.

The truth of this proposition becomes particularly clear when the firm seeking payment actually participated in the Federal Supply Schedule competitive procurement and was rewarded with a listing on the relevant schedule, as is precisely the case before us now. Mohawk did in fact bid for awards under the relevant schedule and succeeded in gaining a place on the schedule. We can conceive of no sound reason why the government should pay Mohawk more than the price that it would have received had the proper procedures been followed to purchase the identical items from the same company under the relevant Federal Supply Schedule.

CONCLUSIONS

Mohawk's claim for reimbursement for AMRDC's use of its automated data processing equipment and services from October 1, 1986 through the end of August 1987 satisfies the requirements for payment under the principles of quantum meruit/quantum valebant. However, since the equipment and services at issue could have been procured under a non mandatory GSA Federal Supply Schedule, the amount of the claim is reduced to that which would have been paid had the items been properly procured under the relevant schedule. The schedule's annual rate should be prorated to the period of AMRDC's actual use of and benefit from those items. The voucher submitted is hereby returned for appropriate action by the Army.

/1/ Mohawk was recently taken over by Momentum Systems Corporation, which was itself taken over by Decision Data, Inc. For purposes of simplicity, this decision refers to the claimant as Mohawk.

/2/ AMRDC's initial submission stated that the invoiced amounts follow the Federal Supply Schedule prices in effect during fiscal year 1987, and "represent the reasonable value of the benefit received by these GSA schedule items." However, AMRDC has subsequently advised us, both formally and informally, that it no longer stands behind that assertion.