[00:00:00] Speaker 00:
016-1068, agility defense versus United States.

[00:00:35] Speaker 00:
Okay Mr. English, please proceed.

[00:01:01] Speaker 04:
Good morning, may it please the court.

[00:01:03] Speaker 04:
As the court knows, my name is Brad English and I represent the Appellant Agility Defense and Government Services.

[00:01:09] Speaker 04:
The primary issue in this appeal, as we see it, is the trial court's application of law in a manner that was inconsistent with the facts as it found them to be.

[00:01:18] Speaker 00:
Okay, let me focus you on, because you have a number of issues that you've raised on appeal and there's one in particular that I really want you to focus on.

[00:01:28] Speaker 00:
So that's where, if you don't mind, I'd like you to start.

[00:01:31] Speaker 00:
which is whether or not there was a negligent estimate of contract provided.

[00:01:37] Speaker 00:
And in particular, I guess what perplexed me, and certainly I'll be asking the government when they stand up, what really confused me is that the court made a finding this is a requirements contract.

[00:01:47] Speaker 00:
Is that correct?

[00:01:47] Speaker 04:
It did, Your Honor.

[00:01:48] Speaker 00:
And that finding, as I understand it, is undisputed by any party or the government?

[00:01:52] Speaker 00:
That's right, Your Honor.

[00:01:53] Speaker 00:
Okay.

[00:01:53] Speaker 00:
So the FAR requires, as I understand it,

[00:01:57] Speaker 00:
And that also seems to be undisputed because it's a regulation that's clear on its face.

[00:02:02] Speaker 00:
It absolutely requires that in a requirement contract, the government provide an estimate.

[00:02:08] Speaker 00:
I've got it here, FAR 16.503.

[00:02:10] Speaker 00:
Yes, Your Honor.

[00:02:11] Speaker 00:
Okay.

[00:02:13] Speaker 00:
So did the government seek or obtain some sort of exception in this case to decline to provide an estimate?

[00:02:18] Speaker 00:
There's no deviation in the record, Your Honor.

[00:02:21] Speaker 00:
Okay.

[00:02:22] Speaker 00:
then what would you say is the estimate that the government provided, which they are required to provide in requirement contracts under the FAR, which I just quoted?

[00:02:31] Speaker 04:
Right.

[00:02:31] Speaker 00:
Our position, and the trial court's analysis was there was no estimate, but our... How could that... Okay, but so if there was no estimate, that would be really problematic, right?

[00:02:42] Speaker 04:
We thought so, Your Honor.

[00:02:43] Speaker 00:
Okay.

[00:02:44] Speaker 00:
All right.

[00:02:45] Speaker 00:
So the trial court's finding was there was... That's the part I had trouble reconciling in the trial court's decision,

[00:02:51] Speaker 00:
This idea that this historical data, for example, it wasn't really offered as an estimate when the trial court seemed to acknowledge the existence of the FAR regulation that required the government to provide an estimate.

[00:03:03] Speaker 04:
Right.

[00:03:03] Speaker 04:
And that was the problem.

[00:03:04] Speaker 04:
In our view, the estimate comprised of two pieces.

[00:03:07] Speaker 04:
There was the historical workload and staffing data that... Even though the government's... I'm sorry.

[00:03:11] Speaker 00:
As you can tell, I sort of know your facts pretty well, so I'm just going to get right to my point.

[00:03:15] Speaker 00:
Absolutely.

[00:03:16] Speaker 00:
So even though the government did provide, when they pointed you to the website for historical data, I think they made some statement to the effect of, you know, we're not saying the historical data represents an estimate as to what the workload requirements will be in future years, right?

[00:03:33] Speaker 04:
Certainly, it said they don't have projections, was the answer to the question when they pointed... No, but I thought they went further.

[00:03:39] Speaker 00:
I thought that they said something to the effect, quite clearly, that the historical data didn't represent a future projection.

[00:03:47] Speaker 04:
I think it said it was for information only.

[00:03:48] Speaker 04:
But, Your Honor, remember, with respect to the historical data, it was historical, and it broke down workload and scrap weight and also line items, and that showed the number of staff at each dermo that was required to process that workload.

[00:04:00] Speaker 04:
But the trial court also found, and it's also undisputed, that in addition to that historical workload data, before offers were submitted, the government provided a projection of workload measured by scrap weight for the base contract year in all four option years.

[00:04:14] Speaker 04:
And the testimony at trial was that Agility and presumably the other offers relied on all of that.

[00:04:19] Speaker 03:
and developing a staffing uh... requirements and and putting together as proposed that that uh... scrap estimate i think it's nine ninety to nine ninety one of the of the appendix i believe in july two thousand seven did it indicate or something or was there something with it that indicated one way or the other this is based on historical estimates adjusted for what we know about the future or what does it say anything about what the starting of the first year scrap estimate is based on

[00:04:49] Speaker 04:
It doesn't give anything as to the basis of it, Your Honor.

[00:04:52] Speaker 04:
The answers to the questions in the Amendment 7, I believe, when that's provided, says expressly, this is provided for assistance in preparing your proposal.

[00:05:00] Speaker 04:
That was the purpose for which it was provided to the off-roars, and that's the purpose for which Agility used it.

[00:05:06] Speaker 04:
And where they came up with the information, Your Honors have seen from my examination of Mr. Washington, who was the head of contracting activities for DRMS when this contract was developed and awarded,

[00:05:17] Speaker 04:
I asked him pretty expressly, how can you give us an estimate of scrap?

[00:05:22] Speaker 04:
And it's very particular.

[00:05:23] Speaker 04:
It's the type and the weight for the base year and all four years without other estimates of what's coming in the door.

[00:05:28] Speaker 04:
And he just flat told us he couldn't.

[00:05:30] Speaker 03:
What is the relationship?

[00:05:34] Speaker 03:
This is, I guess, a question about findings, a question about evidence.

[00:05:38] Speaker 03:
I'm not quite sure what it's a question about.

[00:05:39] Speaker 03:
But the statement at A945, we anticipate an increase in property turn-ins.

[00:05:47] Speaker 03:
warned you, this was June 20th I think, they warned you, there's going to be, we think there will be an increase.

[00:05:56] Speaker 04:
Right, I think that was an answer to a question in June, and remember previously they had said we don't have projections, another offeror asked a question about the fluctuation of variation in workloads and they said we think it will increase, and then the last we heard from the government was Amendment 7, the amendment your honor is asking about is Amendment 4, and so in late July of 07 we get Amendment 7 that has the scrap estimate, and if you read it,

[00:06:17] Speaker 04:
Carefully, it shows consistent or constant workloads for the base year and the first option year, and then declining workloads at each DERMO over the period of performance.

[00:06:25] Speaker 00:
And that's not what actually happened at all.

[00:06:27] Speaker 04:
No, Your Honor.

[00:06:28] Speaker 04:
On day one, as the trial court found, we started at DERMO-ERIF-JON, and there were 70,000 line items on the ground waiting for agility to process.

[00:06:36] Speaker 04:
And if you look at the baseline workload for ERIF-JON, which was incorporated in the contract... Over 200% higher.

[00:06:43] Speaker 04:
Right.

[00:06:43] Speaker 04:
Well, it was eight months' worth of work based on the baseline, not even counting what's coming in.

[00:06:48] Speaker 04:
And so for the entire period of performance, measuring the work based on quantities, it was 260 percent of the workload baselines that offerors were given to prepare their proposals, which were actually incorporated in the contract.

[00:07:00] Speaker 04:
And then measured by scrap weight, it's 270 percent.

[00:07:03] Speaker 04:
And we think that it's pretty clear that in the trial court found that increase in workload was dramatic and it occurred on day one.

[00:07:12] Speaker 00:
I know that's the tricky thing about that H-19.

[00:07:14] Speaker 00:
I looked at that H-19 and I thought you guys really got screwed because it allowed for if you could renegotiate and ask for more money if throughout the life of the contract the estimates went way beyond from one year to the next what they've been the previous year more than 50 percent higher or something whatever over a three-month period but what it didn't address is what happens if day one out of the blocks you're slammed

[00:07:41] Speaker 00:
with 200 or 300 percent higher volume of work than historical estimates had suggested would exist, you had absolutely no recourse, as far as I can tell, under H-19 at least.

[00:07:52] Speaker 00:
Is that your understanding?

[00:07:53] Speaker 04:
That's our understanding.

[00:07:53] Speaker 04:
I think that's really the problem, Your Honor.

[00:07:56] Speaker 04:
At H-19, as it was expressly written, confusing as it might have been, it didn't really contemplate any relief until month four, because you had to have 150 percent above, which is 200 percent up.

[00:08:06] Speaker 04:
Months one through three.

[00:08:07] Speaker 00:
but if one through three were way off the scales to begin with, you could never reach that limit.

[00:08:11] Speaker 03:
And I take it your position about H-19, this is I guess a legal issue that the government raises that the Court of Federal Claims didn't address, is that H-19 simply does not speak to errors affecting day one, like

[00:08:30] Speaker 03:
the bad estimate, the negligent estimate, the inaccurate.

[00:08:35] Speaker 03:
So it doesn't exhaust the field of remedies as to problems that occur on day one.

[00:08:43] Speaker 04:
Absolutely, Your Honor.

[00:08:44] Speaker 04:
The disputes clause was in the contract, and nothing about H-19 said we also lose our normal contract rights.

[00:08:49] Speaker 04:
But even if H-19 applied on day one, if you do the math and it's in our brick, we met it.

[00:08:53] Speaker 04:
It's credible, incredible as that sounds.

[00:08:55] Speaker 04:
Because if you take the 9100 line items,

[00:08:58] Speaker 04:
that would have been the baseline workload.

[00:09:01] Speaker 04:
And then you take the 70,000 line items that the trial court found were on the ground in day one.

[00:09:04] Speaker 00:
You didn't argue this on appeal, right?

[00:09:07] Speaker 00:
You're explaining right now that you met H-19, but I don't remember you arguing to us in your appeal brief that the lower court erred because you met H-19 and therefore you should have received an equitable adjustment based on having satisfied clause H-19.

[00:09:21] Speaker 04:
We didn't really say anything about H-19 because the trial court didn't reach it, but this point is in the brief.

[00:09:26] Speaker 04:
the mathematical calculation that I'm explaining now, the 9,100 line items that would have been the baseline at Dermot-Eriff-John, if you multiply that by 250%, it's about 22,000 line items.

[00:09:38] Speaker 04:
And then to meet the metric, you have to have that workload extending for three months.

[00:09:41] Speaker 04:
And if you divide just the 70,000 line items that were on the ground by the 22,000 line items that would have been the product of 9,100 times.

[00:09:48] Speaker 00:
Oh my god, blah, blah, blah, these numbers, forget it, stop.

[00:09:50] Speaker 01:
It's over three months.

[00:09:52] Speaker 01:
You know, this is a classic force majeure case.

[00:09:55] Speaker 01:
The force majeure being the Iranians providing new types of shaped charge IEDs to the folks who are creating all your scrap for you.

[00:10:07] Speaker 04:
Right.

[00:10:07] Speaker 04:
Well, it certainly was a situation where whatever the reason, it's undisputed.

[00:10:11] Speaker 04:
Again, the trial court made these findings that we think if you apply the law require a finding of entitlement.

[00:10:16] Speaker 04:
The trial court found that the sole reason that the government decided to outsource the operation of these dermos in the first place was because it sat down in late 2006

[00:10:24] Speaker 04:
and said we're going to get more work than our current staff can handle.

[00:10:28] Speaker 04:
But when it told us to bid, when it gave us the information to submit proposals, it let us bid to requirements that its current staff could handle.

[00:10:37] Speaker 03:
Can I ask you a particular question about the relation between the three different claims you have?

[00:10:45] Speaker 03:
I understand the negligent estimate claim is the A990-91 was negligently incorrect

[00:10:54] Speaker 03:
They told you it was going to be level and then actually drop.

[00:10:59] Speaker 03:
That was careless.

[00:11:00] Speaker 03:
I understand the variant of that that says that very same representation was a unreasonably inaccurate warranty.

[00:11:11] Speaker 03:
What is, what in addition is there to the claim of, I guess it's your first claim,

[00:11:18] Speaker 03:
failure to disclose superior knowledge.

[00:11:22] Speaker 04:
Right.

[00:11:22] Speaker 04:
And that's why I was just getting on your arm.

[00:11:25] Speaker 04:
The whole reason that DREAMS was motivated to outsource this work was they knew there was a tidal wave of work coming.

[00:11:30] Speaker 04:
That's the trial court's finding.

[00:11:32] Speaker 04:
DLA director determined in late 06 that we're not going to be able to handle the work that was coming.

[00:11:36] Speaker 04:
And when they set up the contract and provided information that they expressly intended to offer us to rely on,

[00:11:42] Speaker 04:
The requirements that offerors were told to bid to were not the requirements that they expected to come.

[00:11:47] Speaker 01:
They said you have to have the ability to handle surges.

[00:11:52] Speaker 01:
This was a surge.

[00:11:53] Speaker 04:
Certainly, Your Honor, but we were in surge in day one.

[00:11:55] Speaker 04:
And so when you just look at the information, we didn't get to step foot on the ground.

[00:11:59] Speaker 04:
There was, like I said, nine months of work on the ground as the trial court found it.

[00:12:02] Speaker 04:
And we were not entitled to any more staff, according to DRIMS, when we kept asking for additional personnel.

[00:12:07] Speaker 00:
You're into your rebuttal time.

[00:12:08] Speaker 00:
Do you want to save it?

[00:12:09] Speaker 04:
I would like to save it.

[00:12:10] Speaker 00:
Very good.

[00:12:10] Speaker 00:
Thank you.

[00:12:15] Speaker 00:
Mr. Austin.

[00:12:23] Speaker 02:
Please proceed.

[00:12:24] Speaker 02:
They have pleased the court.

[00:12:26] Speaker 02:
I listened to Mr. English's argument and there's one key fact that Mr. English omitted.

[00:12:32] Speaker 02:
The government knew that this contract placed high risk upon the contractor.

[00:12:40] Speaker 02:
The government, though, was not careless, was not just saying, well, you bid on it,

[00:12:45] Speaker 02:
There was two mechanisms in the contract to aid the contractor in this performance.

[00:12:52] Speaker 02:
The first was Clause H-19.

[00:12:55] Speaker 02:
The court did not reach Clause H-19 because while during the first few months of the contract, the parties had a disagreement or negotiations as to the applicability of Clause H-19, prior to bid, Agility never inquired

[00:13:15] Speaker 02:
about H-19.

[00:13:17] Speaker 02:
The language was plain and patent on its face.

[00:13:20] Speaker 02:
Therefore, if they suspected that there was a problem, they had a duty to inquire before bid opening.

[00:13:28] Speaker 02:
They didn't.

[00:13:29] Speaker 02:
The court therefore said, I'm not going to reach H-19 because agility waived

[00:13:36] Speaker 02:
But that wasn't the only benefit.

[00:13:39] Speaker 03:
The problem I guess I have with that is that H-19 by its terms is only about changes between what's starting between day one and day four, or month one and month four, etc.

[00:13:53] Speaker 03:
It's not about what went wrong on day one as a result of deficient

[00:14:03] Speaker 03:
to use a general term, information that went into their bid.

[00:14:07] Speaker 03:
It just doesn't address that situation.

[00:14:09] Speaker 02:
Your Honor, when you speak of deficient information... I'm covering all three claims.

[00:14:15] Speaker 02:
Yes, Your Honor, I understand that.

[00:14:17] Speaker 02:
But when we look at what was to be expected upon day one, the contract, the proposal, the solicitation, everything was silent as to the workload to be expected on day one.

[00:14:31] Speaker 03:
Except the scrap estimate was not silent.

[00:14:34] Speaker 02:
Your Honor, when we look at the scrap estimate, we have to look at it in the totality of the proposal.

[00:14:43] Speaker 02:
When you look at Amendment 4, Question 11, where it stated that property turn-ins would increase, you have to balance that against the scrap estimates, which would say that the workload or the scrap estimates would remain constant over the first two years and decrease over the third year.

[00:15:00] Speaker 02:
So that leads to three possibilities.

[00:15:03] Speaker 02:
One, the workload would increase property turn-ins.

[00:15:07] Speaker 02:
Two, it remained constant.

[00:15:09] Speaker 02:
And three, it would decrease.

[00:15:11] Speaker 02:
This was a firm fixed price contract.

[00:15:13] Speaker 00:
Wait.

[00:15:14] Speaker 00:
Stop.

[00:15:15] Speaker 00:
I thought that it was an appeal that this was a requirements contract.

[00:15:19] Speaker 00:
I thought the lower court held this was a requirements contract, and I saw no appeal from any party disputing the finding that it was a requirements contract.

[00:15:29] Speaker 02:
That's correct, Your Honor.

[00:15:30] Speaker 02:
It was a firm fixed price

[00:15:32] Speaker 02:
requirement contract.

[00:15:34] Speaker 00:
Which requires under FAR 16.503 the government to provide an estimate, is that correct?

[00:15:41] Speaker 00:
Am I misunderstanding the FAR regulations?

[00:15:43] Speaker 02:
No, Your Honor, but when you look at 48 CFR 16.503A1, it states at the beginning that the government is to provide a realistic estimate.

[00:16:00] Speaker 02:
Down near the end of the clause, however, it says that the government can obtain the estimates from historical data.

[00:16:11] Speaker 03:
Well, see, I guess the problem I have with that is this.

[00:16:15] Speaker 03:
I will stipulate just for the purposes of this point that it might be possible to read that second sentence to say, in its language, that

[00:16:28] Speaker 03:
given the historical data no matter what that historical data actually tells you about the future.

[00:16:35] Speaker 03:
But why in the world would we read it that way when the whole point is you have to give your best estimate of the future and if a company in a securities context or something new of an event that made yesterday's news no longer an accurate

[00:16:50] Speaker 03:
estimate for the future he couldn't say well we'll just tell you what's and and was under a requirement to prognosticate the future he couldn't say well yesterday this is what happened your honor sometimes sometimes that's enough and sometimes it isn't but here there's some reason to think actually it wasn't things were changing yet your honor there there are actually two aspects to your point

[00:17:16] Speaker 02:
And the first is, was there another way that the government could have presented what they wanted through the contract?

[00:17:25] Speaker 02:
And the answer is, yes, they could have.

[00:17:28] Speaker 02:
But that begs the question in terms of what did the government do?

[00:17:33] Speaker 02:
And the government provided, in lieu of trying to predict the future, they said, OK, here's the current and historical workload data.

[00:17:45] Speaker 02:
You, Mr. Contractor, you have to determine whether it would increase, remain the same, or decrease.

[00:17:51] Speaker 00:
Time out.

[00:17:52] Speaker 00:
I don't see how that's consistent with FAR 16.503, which requires the contracting officer to give a realistic estimate.

[00:18:02] Speaker 00:
It then says the contracting officer may obtain the realistic estimate from records of previous requirements of consumption or by any other means utilizing the most current information available.

[00:18:14] Speaker 00:
So it doesn't divorce the idea that historical data can be used.

[00:18:19] Speaker 00:
Certainly it can.

[00:18:20] Speaker 00:
But only when that historical data is going to provide a realistic estimate.

[00:18:27] Speaker 00:
That seems to be clearly and unequivocally required by this FAR regulation.

[00:18:31] Speaker 00:
I just don't see any room for any other interpretation.

[00:18:34] Speaker 00:
And if that is the interpretation, how did the government satisfy that?

[00:18:39] Speaker 01:
And I'd like to throw in this question.

[00:18:41] Speaker 01:
Was the estimate realistic?

[00:18:43] Speaker 02:
Your Honor, and I understand your question, but when we look at what the government did, almost by definition, using the historical and current data, and it was out a year in the past, then that is almost by definition realistic because it was the actual workload data.

[00:19:08] Speaker 02:
Agility can't point to one aspect

[00:19:12] Speaker 02:
of the historical or current data that was not known to Agility.

[00:19:17] Speaker 02:
And Agility knew that it was a high-risk contract, and that leads to the second point that I was mentioning earlier.

[00:19:24] Speaker 01:
Did they know they were walking in with that volume of work on the first day?

[00:19:31] Speaker 02:
Your Honor, in terms of that, they were able to do a pre-bid survey.

[00:19:38] Speaker 02:
Even though it wasn't a major factor at trial, there was testimony that the government had stopped processing property a week or two weeks prior to agility taking over contract performance.

[00:19:56] Speaker 02:
There was testimony from Mr. Marlo Burns, who was a contracting officer representative, who did an analysis of the property turn-in

[00:20:06] Speaker 02:
from approximately January of 2008 through March of 2008 when agility took over.

[00:20:15] Speaker 02:
And he found that there was 10 to 15,000 line items or that it was only a short period.

[00:20:22] Speaker 02:
But set that aside, the contract is silent on what is to be expected of day one.

[00:20:28] Speaker 02:
It did not state that upon day one, you would have zero workload, so you plan it.

[00:20:34] Speaker 02:
They had to anticipate increase, remain the same, or decrease.

[00:20:40] Speaker 02:
But, Your Honor, the most important aspect of the solicitation is that there was a provision where agility could sell the scrap metal that they disposed of, and they could keep the proceeds free and clear.

[00:20:57] Speaker 02:
They didn't have to give the government a dime.

[00:21:00] Speaker 02:
And the evidence was that they collected $44 million over the two years of the contract.

[00:21:07] Speaker 03:
I took it that the evidence was what they collected, or was, in fact, less than what they budgeted for.

[00:21:14] Speaker 02:
Not what they budgeted for, what they're projected.

[00:21:18] Speaker 02:
They had some type of formula.

[00:21:23] Speaker 03:
Right.

[00:21:23] Speaker 03:
They made some internal projections.

[00:21:27] Speaker 03:
As a result of those internal projections,

[00:21:30] Speaker 03:
they responded to the solicitations directive to show us how much you're giving us back kind of by reducing the price because you're going to get some money from scrap and they offered, I don't know, $20 million or something reduction, but in fact they got a lot.

[00:21:53] Speaker 03:
What turned out to happen with the scrap was quite, quite different from what they had expected.

[00:21:59] Speaker 02:
Your Honor, not the quibble, but quite different is a qualitative, if you will, concept.

[00:22:07] Speaker 03:
I have some numbers.

[00:22:08] Speaker 03:
I was just trying to skip.

[00:22:10] Speaker 02:
No, I understand that, Your Honor.

[00:22:11] Speaker 02:
They projected $57 million over the first two years.

[00:22:16] Speaker 02:
They received $44 billion over the first two years.

[00:22:20] Speaker 03:
And how does this go to whether there was a negligent estimate or reasonable inaccuracy or failure to reveal severe knowledge as opposed to damages or which might come later?

[00:22:33] Speaker 02:
It sort of blends over all three or all four of those concepts.

[00:22:39] Speaker 02:
Because when you look at the negligent estimate or superior knowledge

[00:22:44] Speaker 02:
the issue becomes, was Agility surprised that there was an increase in workload?

[00:22:51] Speaker 02:
And no.

[00:22:52] Speaker 02:
The evidence in the proposal where it says property turn-ins would increase put them on notice that the workload could increase.

[00:23:03] Speaker 02:
And in fact, you have clause H-19.

[00:23:05] Speaker 02:
In their proposal, Agility had a paragraph which said,

[00:23:09] Speaker 02:
When there is a surge, we will move requirements among the different basins to handle it.

[00:23:15] Speaker 02:
So they also knew through that, that it would increase.

[00:23:18] Speaker 02:
But then most importantly, we have the sales proceeds.

[00:23:22] Speaker 02:
The sales proceeds allow them to keep free and clear.

[00:23:26] Speaker 02:
And when the government announced that, they also said that it was hoped that the contractor would use the sales proceeds to offset the cost of performance.

[00:23:37] Speaker 02:
And there was a requirement that they had to show how the government would reap a benefit.

[00:23:42] Speaker 02:
In its proposal, Agility stated that over the course of the five years, they reduced their contract price by $20 million.

[00:23:51] Speaker 02:
It was frontloaded over the first two years.

[00:23:54] Speaker 02:
So over the first two years, they discounted their price by $11 million.

[00:24:00] Speaker 02:
They received $44 million.

[00:24:03] Speaker 02:
that left 30 million dollars free and clear profit and yet... Oh, no, no, wait a second.

[00:24:08] Speaker 03:
Free and clear is one thing.

[00:24:09] Speaker 03:
Profit is a quite different thing.

[00:24:11] Speaker 03:
They don't have to give anything to the government, but free and clear does not equate profit because they might have had 29 million dollars in costs to get that.

[00:24:21] Speaker 02:
Your Honor, in terms of the trial testimony, the evidence and Mr. Freide, who was their chief financial officer at the time, stated

[00:24:33] Speaker 02:
that we reimbursed ourselves from that 44 million, the 11 million that they discounted.

[00:24:40] Speaker 02:
So I may have misspoke by using the phrase free and clear because they were unable to say what other costs were involved in that 30 million.

[00:24:51] Speaker 02:
But the most important thing is that they received $30 million more than they had, when I say anticipated, than the contract price.

[00:25:02] Speaker 02:
and the government stated that... I don't remember.

[00:25:04] Speaker 02:
Did Judge Wheeler make any findings about that?

[00:25:06] Speaker 02:
Yes, Your Honor.

[00:25:07] Speaker 02:
I believe near the end of the opinion he stated just what I stated that when we look at the when we look at the contract and he does talk about to some extent the sales proceeds.

[00:25:29] Speaker 02:
May I have a minute here?

[00:25:32] Speaker 03:
I see, and under the conclusion, is that correct?

[00:25:45] Speaker 03:
Yeah.

[00:25:46] Speaker 03:
It's J18.

[00:25:46] Speaker 03:
J18 under the conclusion paragraph?

[00:25:49] Speaker 02:
Correct, Your Honor.

[00:25:50] Speaker 03:
Although Agility faced workload significantly in excess of what it anticipated, Agility still received over 44 million scrap proceeds as nonprofits.

[00:25:58] Speaker 03:
over the 27 months of the contract, the fact that the proceeds were a bunch lower than Agility's projections doesn't move the equities.

[00:26:06] Speaker 02:
Yes, Your Honor, and that's what I was already, I may have been a little dogmatic by saying profit or free and clear, but the bottom line is that they received more in the sales proceeds, or they received the additional sales proceeds with the notion that they would offset the cost of performance.

[00:26:28] Speaker 02:
The government didn't know how to predict the requirements.

[00:26:32] Speaker 02:
Trying to predict troop movements, as the judge found, was almost impossible.

[00:26:40] Speaker 02:
But when you look at what Agility is asking, they're asking for, in essence, to divulge national security estimates.

[00:26:51] Speaker 02:
Because if you know when you're going to draw down troops,

[00:26:55] Speaker 02:
or move troops, or surge troops, why would you publish it in a public document a year, two, three, four, five years in advance?

[00:27:05] Speaker 00:
Well, maybe then you just don't have the option of offering a requirements contract in your solicitation if you can't actually provide an estimate to go along with it in compliance with your own FAR regulations.

[00:27:16] Speaker 02:
Your Honor, I understand that point, but we also look at the discretion that is afforded

[00:27:22] Speaker 02:
to contracting officials in procurement.

[00:27:25] Speaker 00:
Well, there's no discretion in the FAR regulation.

[00:27:27] Speaker 00:
The FAR regulation is a regulation that binds every one of those contracting officials.

[00:27:31] Speaker 02:
That's correct.

[00:27:32] Speaker 02:
But I was focusing more on the type of contract that's left to the discretion.

[00:27:36] Speaker 02:
OK.

[00:27:37] Speaker 02:
Your time.

[00:27:38] Speaker 02:
I know, Your Honor.

[00:27:38] Speaker 00:
Thank you, Mr. Austin.

[00:27:40] Speaker 00:
Do you have anything further you'd like to add?

[00:27:42] Speaker 04:
I'd just touch on a couple things very briefly, Your Honor.

[00:27:46] Speaker 04:
During my initial argument, Your Honor, to ask and make a comment about how we thought we met H-19 at least

[00:27:52] Speaker 04:
Dermot Arif John, and that is in pages 60 and 61 of our principal brief, and that's just meant to address a comment in court.

[00:27:57] Speaker 04:
He didn't get into H-19, but we thought we needed to address it just in case it was important to the court.

[00:28:03] Speaker 04:
Mr. Austin spoke about a pre-award survey, and I believe the testimony and trial came from Mr. Baker, that that pre-award survey occurred in the spring of 2007, the early stage of the proposal process.

[00:28:14] Speaker 04:
And then there was a dispute that won the trial court's all frankly in our favor.

[00:28:18] Speaker 04:
The government contended that there was only about 15,000 line items at most on the ground at Arifjan.

[00:28:23] Speaker 04:
We contended it was 70,000.

[00:28:24] Speaker 04:
The trial court found it was 70,000.

[00:28:26] Speaker 04:
And so the issue about the pre-award survey, that was, you know, proposals were, final proposal revisions were in September.

[00:28:34] Speaker 04:
The award was made in November.

[00:28:35] Speaker 04:
The government operated this DERMOS until February.

[00:28:38] Speaker 04:
And so there's no way, there's no inspection, no evidence of inspection between final proposal submissions and award.

[00:28:43] Speaker 04:
and then the first day of performance.

[00:28:46] Speaker 04:
The last thing I want to touch on, just briefly, a couple things, as it relates to the scrap sales.

[00:28:51] Speaker 04:
To us, the government's assertion that the scrap proceeds were supposed to offset costs is true, and it did.

[00:28:59] Speaker 04:
The independent government cost estimate was $73 million.

[00:29:01] Speaker 04:
Our proposal was $45 million.

[00:29:04] Speaker 04:
The highest of the three offers was $71 million.

[00:29:06] Speaker 04:
The next lowest was $68 million.

[00:29:08] Speaker 04:
The government got the benefit of the cost savings on the front end, and it told Agility it could have the scrap free and clear.

[00:29:14] Speaker 04:
But the idea of free and clear is sort of inconsistent with the notion that you can have it free and clear as long as you first apply it all to offset any additional costs of performance.

[00:29:22] Speaker 04:
That's essentially an inchoate lien on these scrap proceeds.

[00:29:25] Speaker 04:
It's not free and clear if we have to apply it to offset additional costs.

[00:29:29] Speaker 04:
And then the last thing about the troop movements, I know Judge Wheeler mentioned that in his opinion, just like we didn't really dispute the scrap estimate because we had one, we never really thought about troop movements.

[00:29:39] Speaker 04:
We mentioned there were some instances

[00:29:41] Speaker 04:
in the record where the government mentioned troop movements.

[00:29:46] Speaker 04:
But certainly we agree with Judge Weaver, that wouldn't have been that helpful.

[00:29:48] Speaker 04:
A platoon of medical professionals is going to be different than a tank battalion.

[00:29:52] Speaker 04:
And so unless we know what they have, that's not going to help us.

[00:29:54] Speaker 04:
The point was the singular motivating factor that the trial court found in the government's decision to award this contract in the first place was its knowledge that its staff was going to be overrun.

[00:30:06] Speaker 04:
That was never shared with all four boards.

[00:30:08] Speaker 04:
We were told to bid to a set of requirements that its staff could have performed, and even given the number of people it took to perform that work.

[00:30:13] Speaker 04:
All the while, they knew that that was not going to be the requirement we were intended to meet, and they even evaluated proposals against that information.

[00:30:20] Speaker 04:
We see at least two instances where Agility's proposal is deemed deficient.

[00:30:24] Speaker 04:
Marlo Burns, who probably knows more about staffing a derma than anybody in the world, testified that he reviewed

[00:30:29] Speaker 04:
agility's proposal and he was on the source selection evaluation team and he thought it was going to be.

[00:30:34] Speaker 03:
Can I ask you, this is I guess a version of the question I asked you when you were up here the first time.

[00:30:39] Speaker 03:
Suppose for purposes of this question that you prevail here on negligent estimate and even the warranty.

[00:30:52] Speaker 03:
Does it matter

[00:30:54] Speaker 03:
whether you also prevail on failure to disclose superior knowledge.

[00:30:59] Speaker 03:
Obviously there are, even on the two that I took as a premise for this question, there will be issues on remand, reliance in its forms, damages if one overcomes reliance.

[00:31:12] Speaker 03:
The superior knowledge claim is

[00:31:17] Speaker 03:
has potentially broader consequences and I'm trying to figure out whether that needs to be addressed.

[00:31:23] Speaker 04:
I think they're interrelated.

[00:31:24] Speaker 04:
The reason that the estimate was negligent was because the government knew at the time we were bidding to it that it doesn't accurately reflect the requirement that they knew were coming and that motivated them to award the contract in the first place.

[00:31:36] Speaker 04:
And so if the court finds the estimate was negligent or if it focuses on either portion of the estimate

[00:31:43] Speaker 04:
I think it also necessarily has to find that it wasn't reasonable or realistic because of the government's knowledge.

[00:31:47] Speaker 04:
And so they bleed together.

[00:31:49] Speaker 04:
And I would say that it matters only in the sense that one finding necessarily we think results in another.

[00:31:56] Speaker 00:
Thank you very much.

[00:31:57] Speaker 00:
I thank both counsel for a very good argument.