[00:00:00] Speaker 01: Khan Inc. [00:00:00] Speaker 01: vs. Secretary of the Army. [00:00:48] Speaker 01: Hey, Mr. Simon. [00:00:50] Speaker 01: Did I pronounce your name correctly? [00:00:51] Speaker ?: You did. [00:00:52] Speaker 01: OK. [00:00:53] Speaker 01: You reserved five minutes for rebuttal. [00:00:56] Speaker 01: And so you may begin. [00:00:58] Speaker 00: Yes, Your Honor. [00:00:58] Speaker 00: Thank you. [00:00:59] Speaker 00: May it please the court. [00:01:01] Speaker 00: My name's Robert Simon. [00:01:02] Speaker 00: I'm counsel for KCON Inc. [00:01:06] Speaker 00: KCON had two contracts with the Army to provide pre-engineered metal buildings for the Army at Camp Edwards in Massachusetts. [00:01:18] Speaker 04: What were both of the metal buildings? [00:01:20] Speaker 04: I had the impression that the electrical hut was a concrete structure. [00:01:24] Speaker 00: It was a concrete box. [00:01:25] Speaker 00: That's correct. [00:01:25] Speaker 04: So it was a metal building. [00:01:26] Speaker 04: You had one metal building and one concrete building. [00:01:28] Speaker 00: They generally refer to them as PEMBs, pre-engineered manufactured buildings. [00:01:34] Speaker 04: Right, manufacturers, but not metals. [00:01:36] Speaker 00: I said metal. [00:01:37] Speaker 00: I apologize, Your Honor. [00:01:38] Speaker 00: One was metal, though, and one was a concrete box. [00:01:42] Speaker 00: Each solicitation [00:01:46] Speaker 00: identified as solicitation for commercial item contract. [00:01:52] Speaker 00: It used standard form 1449, which is the form that you use for commercial item contracts. [00:02:00] Speaker 00: Neither solicitation included FAR clause 52-28-15, which is a contract clause that requires payment performance bonds for construction projects. [00:02:14] Speaker 00: And that's very germane here to this appeal in that after these contracts were awarded to KCON, which is a small business, the government, the army informed KCON that they needed to provide these payment and performance bonds. [00:02:30] Speaker 00: At that time, they did not have the financial capability to provide the bonds. [00:02:35] Speaker 00: And that's a problem throughout for small businesses in bidding construction work. [00:02:40] Speaker 00: is getting the bond. [00:02:41] Speaker 01: And you thought these were contracts for commercial services, correct? [00:02:45] Speaker 01: That's correct, your honor. [00:02:47] Speaker 01: And wouldn't you say that this case turns on whether these contracts are for commercial services or for construction? [00:02:53] Speaker 00: Yes, your honor. [00:02:54] Speaker 00: In fact, if you turn the page. [00:02:56] Speaker 01: Didn't the conduct of the parties and almost everything else, other than the form that was used, didn't it show that it's for construction of buildings? [00:03:05] Speaker 01: I mean, you started out that way, that you said, [00:03:09] Speaker 01: You started out by saying that this case involves a contract for construction of buildings, tools. [00:03:16] Speaker 00: It involved construction activities. [00:03:19] Speaker 00: But if you turn to the appendix and actually read the contract, appendix 36, it's to furnish and install an 800 square foot pre-engineered metal building with regards to the one that was a metal building. [00:03:37] Speaker 00: Furnish and install. [00:03:39] Speaker 00: Those are terms to supply something, not to construct. [00:03:42] Speaker 01: How do you install a building? [00:03:43] Speaker 01: You've got to build it, or you've got to anchor it down. [00:03:46] Speaker 01: You've got to construct something. [00:03:48] Speaker 00: In terms of the metal building, it's pre-engineered, so you're erecting it at a site. [00:03:54] Speaker 00: Think of it like a shed, a big shed. [00:03:56] Speaker 04: But you're putting it on a concrete slab, I take it. [00:03:59] Speaker 04: Correct. [00:03:59] Speaker 04: Right. [00:04:00] Speaker 04: And you have to build the slab. [00:04:01] Speaker 04: Correct. [00:04:02] Speaker 04: I mean, this building is not something that one is going to pick up and take away after it's been used for six weeks. [00:04:08] Speaker 04: is a permanent structure, right? [00:04:09] Speaker 02: Correct. [00:04:10] Speaker 02: And there's other language in the contract that talks about construction, right? [00:04:15] Speaker 02: Like, for example, page 831, it talks about construction of a new prefabricated metal building. [00:04:21] Speaker 02: But it is acknowledging that there's construction. [00:04:26] Speaker 00: There's no dispute that there wasn't construction required for both projects. [00:04:30] Speaker 00: But you could have 100 billboards that have to be constructed on a base that [00:04:36] Speaker 00: You have to go out and build a foundation or a concrete slab to put the billboard on and build the billboard. [00:04:44] Speaker 00: Does that make it a construction contract that's subject to the requirements of the billboard? [00:04:50] Speaker 01: Let's assume that this is ambiguous, that you had an ambiguous situation here. [00:04:55] Speaker 01: You think that you're going to provide commercial services and then later you see, no, this is for construction of a building or everything points towards construction. [00:05:06] Speaker 01: Isn't it your obligation at that time to raise your hand and inquire as to the exact nature of the contract? [00:05:15] Speaker 00: I don't believe it's ambiguous at all. [00:05:17] Speaker 00: If you look at the commercial item contract itself, there are no construction clauses in it. [00:05:23] Speaker 00: If this was a construction services agreement, you would see dozens and dozens and dozens of federal acquisition regulation contract clauses. [00:05:34] Speaker 00: There are none. [00:05:35] Speaker 00: It identifies it as a commercial item contract because of the policy of the federal government that they want to do business with commercial vendors so that they don't have all the bureaucratic red tape and bonding and et cetera requirements. [00:05:56] Speaker 00: That's the whole reason why you defer and default to a commercial item contract is to avoid that. [00:06:05] Speaker 00: You can't put it on the burden of the contractor to decide what the government desired when they issued the solicitation. [00:06:13] Speaker 00: The classification of the contract is the government's burden, not the bidder's. [00:06:21] Speaker 00: If the bidder question every single time a commercial item contract came out that had some ancillary construction requirements to it, it would [00:06:35] Speaker 00: put a tremendous burden on the agencies. [00:06:38] Speaker 04: How much of your argument depends on the fact that this is a prefabricated building, as opposed to a building that was built by, say, a center block structure that was assembled center block by center block at the site? [00:06:56] Speaker 00: Because the government has argued that it's, and the board below argued it's a construction contract, I would say primarily. [00:07:03] Speaker 00: Because pre-engineered metal buildings, PMB, it is a commodity. [00:07:08] Speaker 00: It's a commercial item that you deliver to the site and furnish. [00:07:13] Speaker 04: So if this were a cinder block construction on the site, you would lose this case? [00:07:20] Speaker 00: I would say that based upon Judge Renna's position that we should have asked. [00:07:24] Speaker 00: Somebody should have said, hey, we're building a building here. [00:07:27] Speaker 00: uh... why why is why is this being uh... solicited under a commercial contract in that case but here were furnishing installing a pre-engineered metal building and it's done routinely in the federal government about the electrical uh... hot or building is that that's even more so that they can but that was a box that's delivered to the site and then the government's installed a uh... telecommunications that that's almost like a shed [00:07:59] Speaker 00: So here in this particular... It's 400 square feet. [00:08:04] Speaker 04: It's a pretty big shed. [00:08:05] Speaker 00: It's a pretty big shed. [00:08:09] Speaker 00: But here what's also telling is that when the government informed KCon other requirement, they waited, they delayed until they were able to provide the bonds and issued a modification to the contract to incorporate the bonds and pay them for it two years later. [00:08:30] Speaker 00: So even the government wasn't sure when they issued this solicitation whether they were being correct when they let it. [00:08:40] Speaker 00: And I think one of the things if you read through the briefs and the board's decision below, the government says, oh, the army violated their policy by doing this. [00:08:52] Speaker 00: And then the board says that at the time of the war, this payment and performance bond [00:08:58] Speaker 00: was incorporated into the contract by the Christian doctrine. [00:09:02] Speaker 00: If that's the case, think about this. [00:09:05] Speaker 00: You have a small business, KCON, bids a commercial item contract without a bonding requirement. [00:09:11] Speaker 00: They win. [00:09:12] Speaker 00: And then the government turns around and says, you owe us payment performance bonds. [00:09:17] Speaker 00: They can't provide them because they're financially unable. [00:09:20] Speaker 00: And the government says, you know what? [00:09:23] Speaker 00: You're in material breach of contract for failure to provide these bonds. [00:09:27] Speaker 00: We're going to terminate you for default subjecting them to brief procurement costs. [00:09:31] Speaker 00: That is not fair. [00:09:32] Speaker 01: KCON is an established contractor, right? [00:09:37] Speaker 01: Are they? [00:09:37] Speaker 01: Yes. [00:09:39] Speaker 01: And have they handled construction contracts for the government before? [00:09:44] Speaker 01: Yes. [00:09:45] Speaker 01: And were bonds required at that time for those construction contracts? [00:09:50] Speaker 00: Yes. [00:09:52] Speaker 00: And you're going to love this one. [00:09:53] Speaker 00: The reason they could not provide the bonds [00:09:56] Speaker 00: was because that same agency had terminated one of their contracts for convenience, and they were trying to negotiate a settlement but unable, and it was that contract that was usurping the farm capacity. [00:10:16] Speaker 00: To me, the be-all end-all here is when you look at that contract, it's a commercial item contract. [00:10:23] Speaker 00: It expressly says that. [00:10:25] Speaker 00: It's the government's responsibility to classify its contracts. [00:10:28] Speaker 00: It looks like a duck. [00:10:30] Speaker 00: It quacks like a duck. [00:10:32] Speaker 00: It's a duck. [00:10:33] Speaker 00: It's a duck. [00:10:34] Speaker 00: And the government's trying to use the Christian doctrine to make that duck a goose. [00:10:38] Speaker 00: And I can't stress the importance of it. [00:10:42] Speaker 00: You can't have contractors doing the government's job. [00:10:46] Speaker 00: FAR part 28 is what applies to the government in classifying their contracts. [00:10:51] Speaker 00: They're the ones that classify it as a commercial value contract. [00:10:54] Speaker 00: And they can't shift the expense and the cost associated with that decision to the contractor. [00:11:01] Speaker 04: OK. [00:11:01] Speaker 04: Of course, the government has paid for the bond. [00:11:05] Speaker 00: They've paid the premium for the bond. [00:11:06] Speaker 04: The only thing that is at issue, I take it, is the delay expense that you incurred. [00:11:11] Speaker 00: It took two years to issue notice to proceed. [00:11:14] Speaker 00: And in those two years, material and labor costs escalated, and that's what the claim was based on. [00:11:19] Speaker 04: And how much is the claim for? [00:11:21] Speaker 00: $116,000. [00:11:22] Speaker 00: OK. [00:11:27] Speaker 00: Thank you very much. [00:11:36] Speaker 01: OK, Attorney Toflin. [00:11:38] Speaker 03: Yes, Your Honor. [00:11:39] Speaker 03: May it please the court, the government respectfully requests that you affirm the decision of the PCA, affirming the Army's decision to reject KCON's request for equitable adjustment. [00:11:48] Speaker 03: The bonding requirements were properly incorporated into these contracts via the Christian doctrine. [00:11:52] Speaker 03: KCON was already compensated for the cost of getting the bonds. [00:11:55] Speaker 03: All the additional costs were due to KCON's inability to timely furnish the bonds. [00:11:59] Speaker 03: They were not the fault of the government. [00:12:01] Speaker 03: The FAR specifically precludes an REA when the delay is the fault of the contractor. [00:12:06] Speaker 03: And for that reason, KCON has already been made whole. [00:12:10] Speaker 03: As I said, the bonding requirement is incorporated into this contract. [00:12:13] Speaker 01: Well, I'm interested in your opponent's argument that what you were doing, you were purchasing a building, not construction services. [00:12:23] Speaker 03: We were purchasing the construction of a laundry facility and a telecommunications hut, Your Honor. [00:12:30] Speaker 03: If you look directly in the project statement of work, it says the task order will provide it. [00:12:37] Speaker 04: Where are you reading from? [00:12:38] Speaker 03: Oh, I apologize. [00:12:40] Speaker 03: 832, your honor. [00:12:41] Speaker 03: Provide for the design and construction of a 20th. [00:12:43] Speaker 03: 832? [00:12:43] Speaker 03: 832, environmentally friendly controlled laundry facility in compliance with all local codes and GSA schedules. [00:12:52] Speaker 02: There are lots of instances in this paper that you're referring to here where it refers to construction. [00:12:57] Speaker 02: But it also says that this is a solicitation for commercial items. [00:13:02] Speaker 02: I mean, on page A28, that's exactly what it says it is. [00:13:07] Speaker 02: There's also been an argument by Kate Kahn that seems rather persuasive that, moreover, you'd see all sorts of different clauses in this contract if it, in fact, were a construction contract. [00:13:19] Speaker 02: So how do you respond to that? [00:13:22] Speaker 03: Well, I certainly acknowledge the fact that the incorrect form was used. [00:13:25] Speaker 03: But if you do look throughout the contract, you see that it was intended to be a construction contract. [00:13:32] Speaker 03: There are construction clauses. [00:13:35] Speaker 03: This was already bid off of the GSA's schedule, so it was slightly different. [00:13:39] Speaker 03: But it's clear throughout the contract that the only indication of commercial items is the fact that we use a commercial items form, and harmoniously use a commercial items form. [00:13:49] Speaker 03: But if you look at what is actually has to be designed, the key of contract interpretation is to interpret the contract as whole. [00:13:55] Speaker 03: Look at all provisions. [00:13:56] Speaker 03: And if you look at the work to be done, the work to be done is construction of a facility. [00:14:01] Speaker 03: The work to be done throughout this makes it clear that the prefabricated building is just one minor part. [00:14:06] Speaker 03: It's sort of the largest procurement part, but it involved site work and foundation and involved actually erecting a structure and installing the inside around concrete work and actually creating a laundry facility. [00:14:20] Speaker 02: I may have distracted you. [00:14:22] Speaker 02: You were going to point out exactly, I think on page 832, the language that you thought supported what you're saying right now. [00:14:27] Speaker 02: I apologize. [00:14:28] Speaker 02: No, no, please don't. [00:14:29] Speaker 03: The first sentence under project scope. [00:14:30] Speaker 03: Your honor, this task order, you see on top of A31, A32 number one project scope, your honor. [00:14:37] Speaker 03: It says the task order provided the design and construction of a 20 foot by 40 foot environmentally friendly, environmentally controlled laundry facility. [00:14:45] Speaker 03: So we're actually not procuring a prefabricated structure. [00:14:48] Speaker 03: We are procuring the construction of a laundry facility. [00:14:55] Speaker 01: I interrupted, so go ahead. [00:14:57] Speaker 03: I want to hear the rest of what you were saying. [00:15:00] Speaker 03: Oh, I believe that was what. [00:15:02] Speaker 01: OK, look at 31 of the appendix. [00:15:05] Speaker 01: It says lotter facilities, construction of a new prefab. [00:15:09] Speaker 01: Then it says FOB destination. [00:15:11] Speaker 01: What does that mean, FOB destination? [00:15:14] Speaker 01: I know what it means, but in terms of a construction, it seems to me FOB destination is a commercial term [00:15:23] Speaker 01: used in the purchase of items, and then describes its limits on the delivery of the items. [00:15:33] Speaker 03: As I understand it, it does this well, Your Honor. [00:15:35] Speaker 03: But the key is you have to look at the contract as a whole. [00:15:38] Speaker 03: And the contract as a whole makes it very clear that it is one for construction. [00:15:41] Speaker 03: It includes a prefabricated building. [00:15:45] Speaker 03: Yes, it's not constructed by brick, as Judge Bryson pointed out. [00:15:48] Speaker 03: It is a metal or concrete structure virtually at the front of the box, but it's a rather large [00:15:53] Speaker 03: shed that they still have to do the excavation, they still have to do the site work, they still have to do the prep work, they still have to put up these structures and create them for a specific purpose. [00:16:03] Speaker 03: Likewise, the Statement of Work doesn't reference construction clauses, it specifically includes the Davis-Bacon, likewise KCON's proposal also references construction clauses and includes the Davis-Bacon wage rates, which are for construction contracts. [00:16:16] Speaker 03: It's very clear from the contracts itself, as well from the party's course of dealing, that it was always viewed as a construction contract, albeit the fact that it was erroneously issued on a commercial items document. [00:16:28] Speaker 04: Mr. Simon, I think this question was asked before, but I want to make sure we have your answer to it. [00:16:34] Speaker 04: Mr. Simon said, well, look, if this were a construction contract, there'd be lots of other provisions in it that are typically in construction contracts that are not in commercial item contracts. [00:16:46] Speaker 04: Now, you've mentioned the Davis-Bacon Act reference. [00:16:50] Speaker 04: Are there other things that you would see in a pure, indubitable construction contract required by the FAR or otherwise that are not in this contract? [00:17:02] Speaker 03: I mean, certainly you would potentially, depending on the scope of a construction contract, you would see a lengthier clauses. [00:17:09] Speaker 03: But the key is what is being [00:17:13] Speaker 04: Well, give me an example of the kinds of clauses you would see in a construction contract that are not here. [00:17:19] Speaker 04: I mean, maybe this is a question really for Mr. Simon more than it is for you, because he raised it. [00:17:24] Speaker 04: But I'm trying to get a feeling for whether there's more here than just the wrong form, but rather there is any kind of holistic pointing towards commercial item as opposed to construction. [00:17:43] Speaker 03: I think that, Your Honor, what it is is that it was used with the wrong form because of the way that KCON's contract was structured. [00:17:52] Speaker 03: What you potentially see is there are certain clauses that are referenced in this owl that presumably would have been included in the contract, like liquidated damages clauses or the prompt payment provisions. [00:18:04] Speaker 03: So certainly they would have been included, but as I said, certainly [00:18:09] Speaker 03: Presumably are more but the statement of work does reference, you know, some of the payment clauses Incorporates the FAR clauses for payments under fixed-price construction contracts and prompt payments for construction contracts So they are likewise There are you know some contract presumably they would have been in the contract themselves It had been a more lengthy construction contracts and probably a more complicated [00:18:36] Speaker 03: construction project that involved more work. [00:18:42] Speaker 03: But it was very clear that the parties understood that it's just typical construction clauses govern these contracts. [00:18:51] Speaker 02: In fact, it's acknowledged in KCON's proposal that- Is there other language that you're relying on beyond the language of page 832 under project scope? [00:19:01] Speaker 02: I presume there's other language. [00:19:03] Speaker 02: Other language showing... In that contract, showing that it's a construction contract and not just the acquisition of a good. [00:19:11] Speaker 03: Yes, Your Honor. [00:19:12] Speaker 03: Under the design services, there's engineering and design services required to develop and submit basic construction plans. [00:19:19] Speaker 03: Where are you reading? [00:19:20] Speaker 03: 832 as well. [00:19:21] Speaker 03: Below there indicates that there are construction plans that have to be submitted. [00:19:25] Speaker 03: If Your Honor is to turn to 833, Division 1, 1.1, [00:19:31] Speaker 03: talks about construction permits. [00:19:34] Speaker 03: As well, 1.7 on A33 as well talks about payment and incorporates the FAR clauses for payments under fixed price construction contracts and the FAR clause for prompt payment for construction contracts. [00:19:53] Speaker 03: Likewise, on page A34, 1.12 incorporates the Davis-Bacon wage rates. [00:20:00] Speaker 03: If then, Your Honors. [00:20:02] Speaker 04: Davis-Bacon is applicable only to construction. [00:20:04] Speaker 03: Is that right? [00:20:05] Speaker 03: Yes. [00:20:05] Speaker 03: That was my impression. [00:20:06] Speaker 03: Yes. [00:20:08] Speaker 02: I apologize. [00:20:08] Speaker 02: Which one was that? [00:20:09] Speaker 02: You're on page 834. [00:20:10] Speaker 03: 834, 1.12. [00:20:12] Speaker 03: Incorporate the Davis-Bacon wage rates into the contract. [00:20:17] Speaker 03: Your Honors, as I said, the contract has to be interpreted as a whole. [00:20:20] Speaker 03: And Your Honors, look through what is being done. [00:20:22] Speaker 03: Divisions 2, starting on 834. [00:20:27] Speaker 03: running through Division 7, exclusive Division 7, which is on 836, talk about all the construction work. [00:20:35] Speaker 03: Talk about construction of the floor slab, utility work, talks about all the construction work. [00:20:40] Speaker 03: It's not until Division 7 on 836 that we actually get to the prefabricated building. [00:20:45] Speaker 03: So the prefabricated building is just one aspect of the larger picture here, which is the construction of an actual laundry facility. [00:20:52] Speaker 03: So if you look at the contract as a whole, it's very clear that [00:20:57] Speaker 03: It is a contract for construction. [00:21:00] Speaker 03: Likewise, if you were to go on throughout the contract, A37 includes more construction work, mechanical work, electrical work, as well as A37 also incorporates liquidated damages causes. [00:21:16] Speaker 03: Liquidated damages cause if they extend beyond the date to complete the necessary construction work, which is typical for construction contracts. [00:21:25] Speaker 03: Then we go on into KCON's proposal, Your Honor, incorporating further indication that they understood it to be construction contracts, specifically on A43, Your Honor, talking about how it was they bid this contract and including typical construction clauses that are in their standard GSA contract. [00:21:45] Speaker 03: And this KCON's proposal goes on to [00:21:50] Speaker 03: kind of restate the work that had to be performed as well as the Davis-Bacon wage rates. [00:21:57] Speaker 03: So it's very clear that from this contract's inception, from the time it was issued, from the time the KCON made its proposal, everybody understood it to be construction. [00:22:06] Speaker 03: A duck is a duck is a duck, as Mr. Simon said, but that duck is construction here. [00:22:09] Speaker 03: Everybody understood it to be construction. [00:22:11] Speaker 03: It was not until KCON actually went to the board that they ever, ever make any sort of meditation that this was not a construction contract. [00:22:18] Speaker 03: as I think you're on a rail, indicated, and of course, dearly and clearly indicates this was a construction contract. [00:22:25] Speaker 03: Not only beyond the proposals, the government first came back a few weeks after the war and said this is a construction contract and we need bonds. [00:22:33] Speaker 03: KCON never said the bond wasn't required. [00:22:35] Speaker 03: Instead, they repeatedly quoted the bonding requirements for a construction contract and offered a tripartite agreement, implicitly acknowledging that it was a construction contract and trying to break that contract down into three separate contracts so they could avoid [00:22:48] Speaker 01: They're a small contractor. [00:22:51] Speaker 01: They're a small business. [00:22:52] Speaker 01: And I kind of understood why they're now talking with you. [00:22:56] Speaker 01: It may quack like a duck and look like a duck, but you guys called it a goose and used the wrong form. [00:23:03] Speaker 01: You started the whole process and put that into place. [00:23:06] Speaker 01: It doesn't seem just to criticize the contractor that's now trying to find a solution to this. [00:23:15] Speaker 03: Oh, not criticizing them offering a solution, Your Honor, not criticizing them at all, just pointing out the fact that they acknowledged at that point in time that it was a construction contract. [00:23:26] Speaker 03: And at that point in time, had they never viewed this as a construction contract. [00:23:29] Speaker 03: Mr. Simon today posited the fact that KCON always saw this as a commercial items contract. [00:23:34] Speaker 03: Well, if they saw this as a commercial items contract, why didn't they come back and say, you're wrong, you don't need bonds, this is a commercial items contract? [00:23:41] Speaker 03: They didn't. [00:23:42] Speaker 03: They acknowledged it was a construction contract and tried to push it under the simplified acquisition threshold. [00:23:46] Speaker 03: I'm not criticizing them for trying to find a different plan. [00:23:49] Speaker 03: The government didn't feel that plan was sufficient. [00:23:51] Speaker 03: It was not obligated to take it. [00:23:53] Speaker 03: What I'm saying is, at that point in time and going forward, their entire course of dealing made it very clear that everybody saw that the duck was construction, albeit the fact that somebody called it a goose. [00:24:07] Speaker 03: Everybody in the understand what to be done was construction. [00:24:11] Speaker 03: And because the bonding requirement is mandatory for all construction contracts by the Miller Act, it can be incorporated by operational law via the Christian doctrine. [00:24:28] Speaker 03: It's very clear that bonding requirements are a significant aspect of procurement policy. [00:24:33] Speaker 03: They've been around for [00:24:35] Speaker 03: turns 1894. [00:24:37] Speaker 03: And it's very important that this Court and the Court of Federal Claims have spoken about the need to use bonding to protect subcontractors and suppliers, payment bond and the performance bond to protect the government. [00:24:49] Speaker 03: It's very clear that the bonding is deeply rooted in government construction policy, federal procurement policy. [00:24:56] Speaker 04: Well, there's no doubt that bonding is out there. [00:25:04] Speaker 04: It's insisted upon and so forth. [00:25:05] Speaker 04: But are there any cases at all that apply the Christian doctrine to the bonding provisions? [00:25:13] Speaker 03: Not that I'm aware of. [00:25:14] Speaker 04: I didn't see any either side citing anything on that. [00:25:16] Speaker 03: No, not that I'm aware of, Your Honor. [00:25:20] Speaker 03: But in this case, the bonding requirements can be incorporated because, and these contracts were clearly for construction. [00:25:25] Speaker 03: as I show in the intent of the party, clearly established that. [00:25:29] Speaker 03: And just to make one point clear, just to kind of go back to something that Mr. Simon said, is that KCON was made whole here. [00:25:36] Speaker 03: And the government promptly told them, before they noticed the proceedings issues, certainly just a few weeks after the war, before they incurred any costs, and said, we need bonds. [00:25:44] Speaker 03: KCON never came back and said, we can't offer bonds. [00:25:47] Speaker 03: Instead, they went around and tried to get around it, and the government consistently said no. [00:25:51] Speaker 03: And in fact, when the government actually sent to KCON, before any notice of proceed was issued, they never issued a notice of proceed until the bonds were given. [00:25:57] Speaker 03: Before KCON expended any cost, they said, we will give you a T for C, because the bonding requirements were not there. [00:26:02] Speaker 03: Termination for convenience. [00:26:03] Speaker 03: Termination for convenience, which would have required the government to pay any cost that KCON had incurred. [00:26:09] Speaker 03: KCON said no. [00:26:10] Speaker 03: KCON wanted to go forward. [00:26:12] Speaker 03: KCON went forward. [00:26:13] Speaker 03: We compensated them for the additional cost of bonds that was not in the contract for everything that they incurred to get those bonds. [00:26:20] Speaker 03: And then what they're now trying to see is they're now trying to come back and see cost escalation. [00:26:24] Speaker 03: KCON was made whole for the government's error. [00:26:26] Speaker 03: Had they promptly furnished the bonds, there would have been no cost escalation here. [00:26:30] Speaker 03: Certainly had they promptly said that they couldn't furnish the bonds, the government could have terminated the contract at that time. [00:26:35] Speaker 03: These escalation costs. [00:26:36] Speaker 01: Are the buildings constructed? [00:26:37] Speaker 01: Has there ever been full performance on the contract? [00:26:41] Speaker 04: Yes, Your Honor. [00:26:42] Speaker 04: Mr. Simon asked a rhetorical question that would it be fair if the government terminated the contract for default in a situation in which, like this case, there had been no requirement of a bond, but the government came back later and said you must have a bond, and then when they couldn't come up with a bond, they default them. [00:27:06] Speaker 04: Well, certainly that issue is not... I understand, but I'm just curious as to what the government [00:27:11] Speaker 04: what your take on that is. [00:27:13] Speaker 04: Whereas he's saying that that's where this all leads, down the line. [00:27:17] Speaker 04: And he's saying that's a very unattractive proposition. [00:27:21] Speaker 04: And so what do you say to that? [00:27:23] Speaker 03: I mean, certainly, assuming that the bonding requirements were written in via the Christian doctrine and written in assuming at the point of contracting sections, there could be a, presumably, the law does allow a termination for default here. [00:27:41] Speaker 03: That's not the situation here. [00:27:42] Speaker 03: We actually offered termination convenience. [00:27:44] Speaker 04: So you're saying that his rhetorical question, you're answering his rhetorical question by saying, yeah, we could. [00:27:51] Speaker 03: It could happen. [00:27:52] Speaker 03: It certainly is not what we did here. [00:27:54] Speaker 03: It certainly was never intended to treat KCON in any sort of inequitable way. [00:27:58] Speaker 03: The government, when they said bonds are required, they immediately offered to furnish the cost of bonding. [00:28:03] Speaker 03: KCON never came back and said, this is a commercial items contract. [00:28:07] Speaker 03: They never came back and said, [00:28:08] Speaker 03: They can't get the bonds. [00:28:11] Speaker 03: And for two years, they never even came back and discussed the fact that they were going to try to make a claim for cost escalation. [00:28:17] Speaker 01: OK, we got your argument. [00:28:18] Speaker 03: I'll see you in my time. [00:28:18] Speaker 03: Thank you, Your Honors. [00:28:23] Speaker 01: Mr. Simon, we'll put you back at three minutes. [00:28:26] Speaker 00: Thank you. [00:28:29] Speaker 00: So I don't want to lose sight of the legal issue that's before this panel. [00:28:33] Speaker 00: The issue is whether the Christian doctrine applies to this contract. [00:28:38] Speaker 00: Council for the government got summoned to some of the background facts that we never really got into at the board because it was just decided that the Christian doctrine applied. [00:28:46] Speaker 00: And therefore, our claim was invalid because it was based upon the payment performance bond issue. [00:28:56] Speaker 00: Without these pre-engineered metal fabricated buildings, which is a commercial item, they are fabricated and made and purchased in quantities. [00:29:06] Speaker 00: You go and you buy these things and you deliver them to construction sites. [00:29:11] Speaker 00: If you don't have that commercial item, you don't have any construction activities here. [00:29:17] Speaker 00: The construction activities surrounding those commercial items are ancillary to the project. [00:29:23] Speaker 00: There was no reason for KCON to think that when the solicitation was identified as commercial item contract, that it was anything but that. [00:29:34] Speaker 00: There are none of those FAR regulation clauses at FAR 52 in this contract, line item by line item by line item, that you would see in a normal construction contract. [00:29:48] Speaker 04: The last thing... Well, I didn't want to interrupt too long, but more and more you see modular homes, for example, being built, where the trucks pull up and they've got, on a series of trucks, they've got the living room, they've got the kitchen, they've got the bedrooms. [00:30:05] Speaker 04: Those are construction, right? [00:30:08] Speaker 04: No. [00:30:08] Speaker 04: You wouldn't consider that you put the house on a slab, you construct the house from all of the parts, you paint, you put in the plumbing, and if that's not construction in your view? [00:30:20] Speaker 00: FEMA solicits those sorts of contracts. [00:30:23] Speaker 04: FEMA trailers are movable. [00:30:25] Speaker 04: They move around. [00:30:25] Speaker 00: I'm talking about... But they put them permanent. [00:30:28] Speaker 00: They can remove them later. [00:30:31] Speaker 00: Yeah. [00:30:31] Speaker 00: But even the modular homes are movable. [00:30:35] Speaker 00: Now, I'm granted a contract. [00:30:38] Speaker 00: All right. [00:30:38] Speaker 00: All right. [00:30:39] Speaker 00: OK. [00:30:39] Speaker 00: And they're acquired through commercial item contracts. [00:30:42] Speaker 01: But you're not a retailer or distributor of prefab buildings. [00:30:47] Speaker 01: No, we're not. [00:30:49] Speaker 01: That's true. [00:30:50] Speaker 01: You're a construction company. [00:30:51] Speaker 01: That's true. [00:30:53] Speaker 01: That's true. [00:30:55] Speaker 00: The only last thing I want to say is that when you use principles of contract interpretation and you look at this contract, [00:31:04] Speaker 00: And it says it's a commercial item contract. [00:31:06] Speaker 00: The form that used is a commercial item contract. [00:31:10] Speaker 00: I don't know how you harmonize and try to contend and say, as a matter of law, it's a construction contract. [00:31:17] Speaker 00: I get that there are construction activities in this contract. [00:31:20] Speaker 00: We're not disputing that. [00:31:22] Speaker 00: But the issue is whether it was identified, the nomenclature that was used by the government to indicate it's a construction contract. [00:31:32] Speaker 00: If they would have done that, [00:31:34] Speaker 00: and omitted the payment and performance bond requirement, I would not be here today. [00:31:39] Speaker 01: OK. [00:31:39] Speaker 01: We got that. [00:31:40] Speaker 01: We got your arguments, sir. [00:31:42] Speaker 01: Thank you very much. [00:31:43] Speaker 01: Thank all the parties for the arguments.