MARK VII ENTERPRISES, INC. v. UNITED STATES POSTAL SERVICE

PSBCA No. 6814

APPEARANCE FOR APPELLANT
Donald G. Furlow, Esq.
Mark VII Enterprises, Inc.

APPEARANCE FOR RESPONDENT
Barbara H. Cioffi, Esq.
United States Postal Service Law Department

OPINION OF THE BOARD

The United States Postal Service contracted with Mark VII Enterprises, Inc. “Mark VII” to refurbish a department store to serve as a post office.  Mark VII claims entitlement to $85,547 it paid a subcontractor to install a closed circuit television “CCTV” system because the specifications provided that it would be purchased using the pass through pricing process.  The solicitation did not describe the process.  The Postal Service denied the claim because the contract type was firm, fixed-price which made Mark VII responsible for subcontracting costs.  Mark VII did not ask the contracting officer about the patently ambiguous specification before bid submission; therefore, the ambiguity is not construed against the Postal Service.  Mark VII is not entitled to the additional $85,547.¹

FINDINGS OF FACT

1. The Postal Service wanted to convert an old Sears department store into a new, main post office for Council Bluffs, Iowa.  The refurbished building would also have office space for Postal Service use.  AF 1, 2.²
2. The Postal Service drafted the specifications and the contract to convert 18,000 square feet of the store AF 1, 15; Resp. Br. at 18.
3. The Postal Service issued the solicitation for the work on July 6, 2017, and required bids by August 10, 2017 AF 2 at 507. 
4. The solicitation provided: The Contractor must provide all material, labor, tools, plant, supplies, equipment, transportation, superintendence, temporary construction of every nature, and all other services and facilities necessary to construct the build-out system, in accordance with USPS approved specifications and drawings. AF 1 at 10; see also AF 2 at 506, 508.
5. The solicitation also provided:  Type of Contract:  The Postal Service plans to award a Firm Fixed Price Competitive contract under this solicitation and all proposals must be submitted on this basis.”³  AF 2 at 644, italics in original.
6. On July 26, 2017, the Postal Service clarified the type of contract at the prebid meeting with contractors: 

CONTRACT TYPE

1. Firm, fixed price with a general contractor, responsible for all work performed.
2. Although a federal agency,[the USPS is not covered by [the] FAR and uses alternative procedures. ⁴

AF 6 at 811.  Without explanation, the word “competitive” was dropped.

7. On August 10, 2017, Mark Anthony Santo, who is Mark VII’s President and majority shareholder, submitted Mark VII’s offer.  One of the required bid submissions was titled Affirmation of Contract Terms and Conditions.  Mr. Santo affirmed:  (1) The proposal submitted is complete and inclusive of all costs associated with the Scope of Work as outlined in the solicitation[;] and (2) All discrepancies, omissions and/or conflicts within the solicitation that might have implications of cost and/or schedule have been made known to the Contracting Officer by the Offeror in writing.  AF 2 at 518, emphasis added.
8. The specifications included 28 Divisions focusing on particular types of work to be done:  Division 1, General Requirements; Division 2, Existing Conditions; Division 3, Concrete; Division 4, Masonry; etc.  AF 1. 
9. Within Division 1, the Postal Service included Subsection 1.3 USPS DIRECT VENDOR EQUIPMENT OR SUPPLIES which provided:
10. In accordance with the terms and conditions of the contract provisions and clauses, including those concerning, Direct Vendor / Pre-selected Sources, the Contractor is solely responsible for contracting with the Direct Vendor and ordering, payment, receiving, accepting, storage and installation of the United States Postal Service Direct Vendor equipment or supplies.  Ordering instructions are included in each specification section.

C. Direct Vendor items in this contract are limited to specific items, as shown in the drawings and listed below:

1. Division 10, Specialties Section 101404⁵ – Postal Signage
2. Division 11, Equipment Section 111300 – Dock Lift
3. Division 12, Furnishings Section 123504 – Postal Casework
4. Division 28, Electronic Safety and Security Section 282305 – Integrated Security and Investigative Platform (ISIP) CCTV System. 

AF 1 at 10-11.

10. While the Postal Service listed four Sections in Division 1, it failed to include Division 8, Section 083800.2.1, Traffic Doors.  Traffic Doors are also identified as a Direct Vendor item in the specifications which provides “[t]his product must be manufactured by a USPS Direct Vendor and is subject to a USPS price and requirements purchasing agreement.”  Section 083800 did not specify whether or not the cost for the traffic doors should be included in the offer.  AF 1 at 109-10.
11. For Division 10, Postal Signage, the specification identified one vendor.  It also provided:  In the Offer, include the estimated exterior signage cost from the Exterior Signage Pricing Form at the end of this section.  This amount includes the exterior signage and shipping.  It does not include installation which is part of the Work.  Contractor may negotiate with the Direct Vendor for installation.  AF 1 at 175.
12. For Division 11, the Dock Lift, the detailed portion of the specifications explaining the loading dock equipment identified one model of dock lift.  Section 11300 did not specify whether or not the cost for the dock lift should be included in the offer.  AF 1 at 198-203.
13. For Division 12, Postal Casework, the specification provided:  1. In the Offer, include the casework cost from the selected Direct Vendor, including shipping.  2. Unloading and installation are also to be included as part of the Work.  AF 1 at 204, emphasis added.
14. For Division 28, CCTV system, the specification provided:

1. All equipment including the servers, monitors, network switch, etc. are to be procured directly from the Direct Vendor (Securitas Electronic Security) utilizing the pass through pricing process. 
2. The cameras, servers, monitors and associated equipment shall be supplied and installed by Securitas Electronic Security, Inc. the sole approved USPS CCTV Direct Vendor.  The Direct Vendor is to provide a Bill of Materials, pricing, and installation costs.  The General Contractor is responsible for power, conduit, cable tray, cable and cable pulling.
The specification did not identify whether Mark VII should include the price for the CCTV system in its offer.  The term “pass through pricing process” is not defined in this specification section or elsewhere in specifications.  The term pass through pricing process is only used this one time in the specifications.  AF 1 at 434, emphasis added. 

15. Relevant to this dispute is the Postal Service’s use of Securitas.  At the time of bid submission, the Postal Service had a contract with Securitas.⁶  The first page of the contract provides:  The purpose of this requirements contract is to acquire the services of a supplier to purchase, manage the installation of and maintain CCTV security systems at various postal facilities throughout the United States.  The contract is specifically identified as a requirements type contract.  AF 9 at 926, 940, 1018-20; AF 13; AF 15.
16. The Postal Service included in the solicitation a Schedule of Values, which is a progress payment sheet including each of the Divisions App. AF D at 26. 
17. For Division 28, Electronic Safety and Security, the Schedule of Values had six, sub-line items:  28.0 Intrusion Detection System, 28.1 Robbery Countermeasure CCTV, 28.2 Investigative CCTV, 28.3 Physical Access Control System (PACS), 28.4 Fire Alarm System, and 28.5 Security CCTV AF 1 at 22.⁷
18. Mark VII provided pricing to the Division level of detail not the sub-line item.  It had one line item price for each Division.  AF 2 at 508.  In pricing its offer, Mark VII included the Direct Vendor costs for Postal Signage and Postal Casework.  It did not include costs for the CCTV system.  App. AF D, W.
19. Mark VII priced Division 28 at $130,000 which did not include the $85,547 Securitas cost for the CCTV system.  The Postal Service’s Estimate of Probable Cost i.e., independent government estimate for Division 28 was $134,540.  AF 2 at 510; AF 11 at 1035; App. AF K; App. AF L, ¶¶ 5-9.
20. In his affidavit, Mr. Santo said that he discussed the term “Direct Vendor” with Mark VII’s electric subcontractor.  He also conducted a Google search of the terms “Direct Vendor” and “Securitas” before submitting Mark VII’s bid.  Before bid submission, he did not ask the contracting officer about the pass through pricing process, Direct Vendors, or whether Securitas’s status as a novated contractor with a requirements contract would affect payment.  He did not ask a single question.  App. AF L, ¶¶ 9-15; App. AF W, ¶¶ 11-12, 15; App. AF Y; AF 6. 
21. Mark VII submitted a timely bid.  On August 30, 2017, the Postal Service selected Mark VII as the winning contractor.  The Postal Service and Mark VII executed a contract for approximately $2.1 million.  AF 2.  The contract as modified was worth $2,340,434.70 App. AF D.
22. Shortly after the contract began, Mark VII learned that its interpretation of whether to include the costs for Securitas was different than the Postal Service’s App. AF K, L, W. 
23. During an initial meeting, the Postal Service’s representative explained that Mark VII would need to pay for Securitas and try to collect the money later from the Postal Service AF W.
24. Mark VII advanced the money and had Securitas complete the CCTV system AF W.
25. Mark VII submitted a certified claim for $124,774.  The claim had two parts.  First, Mark VII sought $85,547 for the Securitas work on the CCTV system.  Second, Mark VII sought $39,227 for reconstructing the loading dock.  AF 4.
26. The contracting officer issued a final decision denying the first part of the claim relating to the CCTV system, but granting the second part of the claim relating to the loading dock AF 5.
27. Mark VII filed a timely appeal of the contracting officer’s decision denying the $85,547 for the CCTV system.  The Board docketed the appeal as PSBCA No. 6814.

DECISION

Mark VII argues that the contract was not ambiguous and that the plain language relating to the CCTV contractor, Securitas, makes the Postal Service liable for the cost because the CCTV system was a “pass through” item.  In the alternative, Mark VII argues that if the specifications were ambiguous, the ambiguity was latent, and the ambiguity should be construed against the Postal Service, which drafted the specifications.
If the contract is ambiguous, Mark VII must show:  (1) that it had a reasonable interpretation of the specifications, (2) that if the ambiguity was patent, it inquired about the ambiguity before bidding, or, alternatively, that the ambiguity was latent, and (3) that the ambiguity should be construed against the Postal Service as the drafter of the specifications i.e., contra proferentum.  See United Pac. Ins., Co. v. United States, 497 F.2d 1402, 1407 (Ct. Cl. 1974); West Bay Builders v. United States, 85 Fed. Cl. 1, 13-17 200); see also John Cibinic, Jr., James F. Nagle, Ralph C. Nash, Jr., Administration of Government Contracts, 211-26 5th ed. 2016.
The specifications were ambiguous.
A contract is ambiguous when there are two reasonable interpretations of the contract language.  Metric Constructors, Inc. v. National Aeronautics & Space Admin., 169 F.3d 747, 751 Fed. Cir. 1999.  “A contract is ambiguous only if it is susceptible to differing interpretations, each consistent with the contract’s language.”  H.B. Zachry Co. v. United States, 28 Fed. Cl. 77, 80 1993, aff’d without opinion, 17 F.3d 1443 Fed. Cir. 1994. 
Mark VII argues that the contract is not ambiguous, relying on the Postal Service’s specific language for the CCTV system requiring the use of the “pass through pricing process.”  In comparison, Mark VII points to the sections of the solicitation for postal signage and postal casework which specifically instructed the bidders to include the costs for those items in their bids. 
Mark VII therefore believes that “pass through pricing” is clear on its face and is substantially different than other sections of the solicitation requiring offerors to include the costs for Direct Vendor items in their bids.  Mark VII also knew that the Postal Service had a requirements contract with Securitas, which meant that the Postal Service would order its CCTV systems directly from Securitas.  Mark VII thus believed that any costs for Securitas would be the same for all of the bidders.  Mark VII therefore believed it did not need to include this cost in its bid.
The Postal Service has not explained—either in the solicitation or during this litigation—why there were three approaches in the solicitation to Direct Vendor items:  (1) specifically telling offerors to include the cost in the bid for postal signage and postal casework, (2) telling offerors to use the pass through pricing process for the CCTV system, and (3) remaining silent on whether to include the cost for traffic doors and the dock lift.  Mark VII reasoned that because the language was different, the treatment of the different Direct Vendor items should be different.  Mark VII’s interpretation is reasonable based on a plain reading of the words “pass through pricing,” its knowledge that Securitas had a requirements contract, the different language used with other Direct Vendor sections, and wanting to give this different language meaning.
On the other hand, the Postal Service argues that the solicitation was clear in its requirement that Mark VII pay for the CCTV system.  The Postal Service relies on the language identifying the contract as being firm, fixed price.  The solicitation states that Mark VII must provide all material, labor, tools, plant, supplies, equipment, transportation, superintendence, temporary construction of every nature, and all other services and facilities necessary to construct the build-out system and that Mark VII was responsible for contracting with [Securitas] and ordering, payment, receiving, accepting, storage and installation of the CCTV system.  Additionally, Mark VII signed the affirmation that it included all costs in its bid price.  The affirmation did not exclude the CCTV system from the bid price.  This interpretation of the solicitation indicates that Mark VII would be liable for the CCTV system costs.  Based on this language, the Postal Service’s interpretation is also reasonable.
The Postal Service points to an explanation on its website, USPS Suppliers, entitled Pass Through Pricing for suppliers.⁸  The Postal Service argues that this website resolves any potential ambiguity and that no further review is needed.⁹
This argument has several problems.  First, this website was not incorporated into the solicitation by reference or even referenced in the solicitation.  Second, the website is not a regulation which was properly promulgated and published in the Code of Federal Regulations.  Anything said on the website was thus not binding for this acquisition.  Third, the website is opaque and does not answer the question at issue here. The website doesn’t say that an offeror should include in the offer the cost for a Direct Vendor when using pass through pricing.  Fourth, the website lists 15 suppliers in the Pass Through Pricing program.  Securitas is not one of them.  The Postal Service’s argument that the website makes the specification clear is unpersuasive.¹⁰ 
Given these facts, the contract specifications are ambiguous as to whether Mark VII should have included the cost for the CCTV system in its bid price.
The ambiguity was patent.
A patent ambiguity is present when the contract contains facially inconsistent provisions that would place a reasonable contactor on notice and prompt the contractor to rectify the inconsistency by inquiring of the appropriate parties.”  K-Con, Inc. v. Secretary of the Army, 908 F.3d 719, 722 Fed. Cir. 2018 quoting Stratos Mobile Networks USA, LLC v. United States, 213 F.3d 1375, 1381 Fed. Cir. 2000.  A patent ambiguity must be “obvious, gross, or glaring.”  NVT Tech., Inc. v. United States, 370 F.3d 1153, 1162 Fed. Cir. 2004 quoting H & M Moving, Inc. v. United States, 499 F.2d 660, 671 Ct. Cl. 1974.
Before submitting its bid, Mark VII did not ask the contracting officer a single question.  It now argues that it didn’t ask any questions because the ambiguity was latent, i.e., neither glaring, substantial, nor patently obvious.  K-Con, 908 F.3d at 722. Mark VII cites to several facts to support this argument.  The Project Manual i.e., statement of work containing the detailed specifications is 453 pages long.  The work relating to the CCTV system is covered in just three of those pages.  The phrase pass through pricing process only appears once in those 453 pages.  The term does not obviously conflict with the rest of the solicitation.  Furthermore, because the solicitation was only out for a month, finding such an item and focusing on it would have been impossible.  The argument that the ambiguity is latent is not persuasive because Mark VII took a very different action for the CCTV system than the other Direct Vendor items.  It knew of the different language.
In contrast, the Postal Service identified the contract type as being firm, fixed price.  A firm, fixed-price contract requires the buyer to pay the seller a definite and predetermined price regardless of increases in the seller’s cost or buyer’s ability to acquire the same goods in the market at a lower price.  Black’s Law Dictionary 11th ed. 2019.  In addition, the solicitation clearly provided:  The Contractor must provide all material, labor, tools, plant, supplies, equipment, transportation, superintendence, temporary construction of every nature, and all other services and facilities necessary to construct the build-out system, in accordance with USPS approved specifications and drawings.  Mr. Santo even affirmed that the bid was “inclusive of all costs associated with the scope of work.
Under these circumstances, the conflict between including the CCTV system cost and not including the cost under Mark VII’s reading of the pass through pricing process was obvious.  The solicitation terms were facially inconsistent and thus patently ambiguous.  States Roofing Corp. v. Winter, 587 F.3d 1364, 1372 Fed. Cir. 2009.  Because the ambiguity was patent, this Board does not reach Mark VII’s argument that the latent ambiguity should be construed against Postal Service as the specification’s drafter.
Mark VII had a duty to inquire.
The ambiguity was patent.  So patent, in fact, that Mr. Santo conducted a Google search to try to understand the meaning of Direct Vendor and that term’s relationship to pass through pricing.  But for unexplained reasons, he did not ask the contracting officer about those terms before submitting his bid.    Additionally, Mark VII’s bid included Mr. Santo’s affirmation that:  All discrepancies omissions and/or conflicts within the solicitation that might have implications of cost and/or schedule have been made known to the Contracting Officer by the Offeror in writing.  Mr. Santo’s affirmation is important because it shows that he understood and accepted the duty to inquire.  If the ambiguity is obvious and the bidder fails to inquire with regard to the provision, his interpretation will fail.  NVT Tech., 370 F.3d at 1162. 
Mark VII failed to inquire about a patent ambiguity.  Therefore, its interpretation which makes the Postal Service liable for the CCTV cost also fails.

ORDER

The appeal is denied.  The Postal Service does not owe Mark VII $85,547.

Peter F. Pontzer
Administrative Judge
Board Member