Denise Farris Named to Local and National Board Positions

Kansas City attorney Denise Farris, Farris Law Firm, LLC, has been named to the Unified Government Wyandotte County/Kansas City, Kansas Fairness in Contracts Board, on which she will be representing metro women-owned businesses and contractors concerning the WBE goals for Unified Government projects. Farris was recommended for the board position by Rosie Privitera Biondo, President of MarkOne Electric, based on Farris’ past service on the Kansas City, Missouri Fairness in Construction Board; her work with the Jackson County Sports Complex and her legislative involvement with local, county, state and federal procurement programs.

Farris was also recently appointed to the Board of Directors of Women Impacting Public Policy, a national bipartisan public policy organization with a membership of more than 500,000 members advocating on behalf of women and minorities in business. During her two-year board term, Farris will assist with organization direction, strategy, and initiatives oversight. Farris assisted WIPP on Kansas legal initiatives and on national level procurement. She testified for WIPP before Congress in 2008 on the Women’s Equity in Contracting Act; served on the Senate small business advisory committee to Senator Olympia Snowe as WIPP’s representative; and currently serves as the WIPP representative on The Unity Council (a national  minority / women business advisory group interfacing with federal agencies on M/W/DBE participation in federal procurement).

SBA Reauthorization Act Addresses Shortfalls in Women Owned Business Procurement

Efforts on Capitol Hill to increase the number of federal contracts awarded to women continue to fall short, according to Denise Farris, managing member of the Farris Law Firm, LLC and Public Policy Chairperson of the Kansas City Chapter of National Association of Women Business Owners (NAWBO).

A recent three day conference in Washington, DC jointly sponsored by NAWBO and WIPP (Women Impacting Public Policy), focused on this and other legislative issues impacting women owned businesses. “The conference presented an excellent opportunity for education about the importance of exercising a strong voice for small business”, said Farris. “It is extremely difficult to speak out on a shared social agenda, where we each have widely varying stances. However, nearly everyone recognizes the importance of legislation supporting small business. The success of our businesses translates to disposable income we can then use to support the social policies important to us”.

One of the most important pieces of legislation pending this session is the Small Business Administration (SBA) Reauthorization Bill, Senate 3778.   A history of the bill is revealing. In 2000, Congress passed Public Law 106-554 which recognized an under-utilization of women owned businesses by the Federal Government. The 2000 law called for a 5% WBE goal to be achieved by federal agencies. Despite the enactment of this law in 2000, and a 2002 presidential initiative to implement the program, the government to date is struggling to achieve just under a 3% utilization.

“The current Senate bill specifically addresses this underutilization and contains procurement regulations increasing small business opportunities”, said Farris. Similar legislation is additionally being considered at the House level.   “While the pending Senate bill addresses the WBE statistics, it also contains measures which benefit all small businesses”, she added.

The initiatives include recognition and reduction of the negative effects of federal contract bundling, whereby two or more contracts are combined into a single large scale agreement whose requirements are typically too large for small business to bid.   Testimony from Government Affairs Officer Anne Sullivan, who serves as lobbyist for WIPP and NAWBO, stated: “Despite strong evidence that bundling is not good for small business or the government, a 2004 Government Accounting Office report showed that federal agencies are confused (about) what constitutes contract bundling,” Sullivan said. A 2002 report by the Office of Management and Budget found that for every $100 awarded on a bundled contract, there is a $33 decrease for small businesses. The report also said that competition is reduced in terms of the frequency and number of opportunities for small businesses. “The new legislation will hopefully clarify the definition of “bundling” while increasing procurement opportunities for small businesses nationally”, said Farris.

Additional Hill testimony was given by WIPP co-founder and President Barbara Kasoff. “Women business owners believe they should have a larger stake in government contracting,” said Kasoff, who noted that 48 percent of all privately held companies in the United States are owned by women. Kasoff noted that in annual WIPP surveys, access to government contracts is “one of the top challenges facing women business owners, who are losing billions of dollars in potential sales to the government.”

A summary of the key provisions of pending Senate Bill 3778 include:

  • Reauthorization of all SBA programs for a three-year period through September 2009 with
  • a 90 day requirement to implement the Women-Owned Small Business Contracting program designed to achieve the 5% procurement goal;
  • provisions that direct the SBA to accept certification from state, local and national certifying entities for both women and minority owned firms;
  • comprehensive legislative changes defining and limiting contract bundling; and
  • rules strengthening subcontracting requirements.

As the majority of these provisions benefit small, women owned and minority owned businesses alike, individual business owners are encouraged to contact their state senators to request specific support of this bill.

Denise E. Farris is the managing member of the Farris Law Firm LLC, 20355 Nall, Stilwell, KS 66085 (913-685-3192). Farris currently serves as the local Public Policy Chairperson of NAWBO-KC (National Association Women Business Owners) and is a National Partner with WIPP (Women Impacting Public Policy). The two national bipartisan organizations cumulatively represent 10.6 million women business owners, with WIPP currently recognized as the preeminent voice for women business owners on the Hill and NAWBO being one of the few women business organizations with an organized PAC (Political Action Committee).For the specific wording of the bill, go to: http://thomas.loc.gov/cgi-bin/query/D?c109:1:./temp/~c109oxyQpS::. To contact your state senators, go to: http://www.congress.org/congressorg/directory/congdir.tt.

 

© Denise E. Farris (September 2005). All rights reserved. This article may not be reprinted nor reproduced in any manner without the express permission of the author, who can be contacted at: Denise Farris, Farris Law Firm, L.L.C., 20355 Nall, Stilwell, KS 66085. Tel: 913-685-3192. Fax: 913-685-3292. Email: dfarris@farrislawfirm.com.

Mechanics Lien Summary – Kansas

Lien claimants? General contractors, subcontractors, sub-subcontractors, Suppliers, and Architects/Engineers. Does NOT permit liens by: suppliers to suppliers or suppliers to sub-subcontractors. 
Lien covers? Labor, materials, supplies, equipment and transportation costs utilized or incorporated into the project. 
Filing Deadline? General: Four months after last substantive labor ormaterial provided*

 

Subcontractor/Supplier: 3 months after last substantive labor or material provided **

 

*Filing deadline may be extended if notice of extension filed within original filing deadline time.

 

Notice Requirements? General Contractor: No notice required 

Subcontractor/Supplier: Lien must be served on owner and parties with an equitable interest in the property.

 

Notice of Intent to Lien? General Contractor:   Not Required 

Subcontractor/Supplier: Not Required

 

Lien Foreclosure? 1 year: Must initiate litigation to foreclose on the mechanics lien no later than one year after the lien was filed. 

 

© Denise E. Farris, Esq.(March 2006). All rights reserved.

Farris Law Firm LLC, 20355 Nall, Stilwell, KS 66085. Tel: 913-685-3192.

Email: dfarris@farrislawfirm.com Web page: www.farrislawfirm.com.

The above article is provided free for generally informing the reader; and is not intended to provide legal advice. For specific information reader should seek legal counsel licensed to practice law in the state of Kansas.

 

Mechanics Lien Summary – Missouri

Lien claimants? General contractors, subcontractors, sub-subcontractors, suppliers, and Architects/Engineers. 
Lien covers? Labor, materials, supplies, and equipment utilized or incorporated into the project. 

Under Missouri case law, does NOT include equipment rental costs.

 

Filing Deadline? Six months after last date substantive labor or materials provided to the jobsite. 

“Substantive” does NOT include warranty or punch list items, but last work substantially required to complete substantial completion of the work scope under the contract.

 

** For subcontractors, notice of intent to file lien must be filed ten (10) days prior to filing the line, thus shortening the filing deadline time.

 

Notice Requirements? General Contractor: Required by statute; wording set forth under RSMo 429.012. 

Must be provided to owner BEFORE any payments are received by general contractor.

 

Notice may be provided:

–          At time of contracting (ie on contract form)

–          When materials are delivered (on delivery tickets)

–          When work is commenced (notice of commencement), or

–          With the first invoice (ie on invoice)

Notice of Intent to Lien? General Contractor:  Not RequiredSubcontractor or lower tier claimants: Required 10 days before filing lien. Must be served on owners of record as of the date construction began.

 

Lien Foreclosure? 6 months: Must initiate litigation to foreclose on the mechanics lien no later than six months after the lien filed. Recommended it be commenced at five months to allow sufficient time to serve all necessary parties. 

 

© Denise E. Farris, Esq.(March 2006). All rights reserved.

Farris Law Firm LLC, 20355 Nall, Stilwell, KS 66085. Tel: 913-685-3192.

Email: dfarris@farrislawfirm.com Web page: www.farrislawfirm.com.

The above article is provided free for generally informing the reader; and is not intended to provide legal advice. For specific information reader should seek legal counsel licensed to practice law in the state of Missouri.

 

IDIQ Contracts

Indefinite Delivery Contracts

I. (§16.1) What Is an Indefinite Delivery (ID) Contract?

A. (§16.2) Definite Quantity Contract
B. (§16.3) Requirements Contract

II. (§16.4) What Is an Indefinite Delivery Indefinite Quantity (IDIQ) Contract?

III. Basic Rules of ID Contracting

A. (§16.5) Advisory and Assistance Services
B. (§16.6) Task Order or Job Order Contracting

1. (§16.7) Contract Requirements
2. (§16.8) Minimum Quantity
3. (§16.9) Funding the Contract
4. (§16.10) Inter-Agency Acquisitions
5. Potential Problem Areas with JOC Administration

a. (§16.11) Low Bid Factor of Coefficient
b. (§16.12) Inconsistent Contractor Line Item Proposal vs. Government Scope of Work
c. (§16.13) Determination of Unit Price Item Inclusions
d. (§16.14) Unit Price Book Inaccuracies
e. (§16.15) Distinguishing Pre-Priced From Non-Prepriced Items
f. (§16.16) Quality Standards
g. (§16.17) Inaccurate Proposals

IV. Preparing the Work Statements for TOC/JOC Contracts

A. (§16.18) Indefinite Delivery Contracts
B. (§16.19) Performance Based Contracting

V. (§16.20) Pricing

A. (§16.21) Government’s Pricing Problem
B. (§16.22) Contractor’s Pricing Problem

VI. (§16.23) Multiple Awards

VII. (§16.24) FAR Part 36 and Job Order Contracting

A. (§16.25) FAR 36.202 Specifications
B. (§16.26) FAR 36.204—Disclosure of the Magnitude of Construction Projects
C. (§16.27) FAR 36.500, et seq.—Construction Contract Clauses

VIII. (§16.28) Modifying a Task Order

IX. (§16.29) Conclusion

X. Representative Cases

A. (§16.30) Defining When a Task Is Not in Scope
B. (§16.31) Protests of Individual Task Orders
C. (§16.32) Government Requirement to Honor Acquisition Regulations
D. (§16.33) Government Duty to Provide Realistic Estimates
E. (§16.34) Governmental Tort Liability
F. (§16.35) Equitable Relief vs. Government
G. (§16.36) Mistake in Bid
H. (§16.37) Bid Protest

I. (§16.1) What Is an Indefinite Delivery (ID) Contract?

Existing in federal procurement since 1981, and only recently making its way down to state and municipal levels, Indefinite Delivery (ID) contracting is a procurement mechanism designed to streamline the competitive bidding process for governmental owners. Invented by the Department of Defense for use by the North Atlantic Treaty Organization, ID contracts have been used routinely and effectively by the DOD for installation maintenance, minor repair, and construction projects since its inception in 1981. If the indefinite delivery contract covers the provisions of construction services, it is typically referred to as a “JOC,” or “Job Order Contract.” Contracts designed primarily for non-construction related services are referred to as “TOC,” or “Task Order Contracts.” Vernon Edwards, “Task Order Contracting: Understanding and Using Task Order Contracts,” Government Contracting Training and Consulting (January 1999). Whether classified as an ID, JOC, or TOC contract, each shares certain similarities.

As a relatively new contracting mechanism at the state level, there are no reported Missouri cases addressing the application of ID, JOC, or TOC contracts. But as there are a number of JOC-type contracts currently in process in the state, this article will attempt to address the overall parameters of the contract form’s use, creation, application, and interpretation.

There are essentially three types of Indefinite Delivery contracts: definite quantity contracts, requirement contracts, and indefinite delivery indefinite quantity contracts.

Depending on the circumstances, one form or another of these ID contracts is used to acquire supplies and/or services when the exact times and/or exact quantities of future deliveries are not known at the time of contract award. FAR 16.501-2(1), ¶ 30,202. Although the rules governing the application of each vary, all three permit Government stock to be maintained at minimal levels. All three also authorize direct shipment to users. FAR 16.051-2(b). All three permit agencies to defer ordering, and to defer specifications. Vernon, n.2, at 5.

In addition, indefinite quantity contracts and requirement contracts permit the government flexibility in both quantities and delivery scheduling, and also the ordering of supplies or services after the requirements materialize. FAR 16.501-2(b)(2), ¶ 30,202. Requirement contracts permit faster deliveries when production lead time is involved, because contractors are usually willing to maintain limited stocks when the Government agrees to obtain all of its actual purchase requirements from the contractor. Id. In contrast, indefinite quantity contracts limit the government’s obligation to a stated minimum quantity identified in the contract, without an exclusivity condition. Costs or pricing arrangements that provide for an estimated quantity of supplies or services must comply with the appropriate procedures under FAC 90-32; 60 FR 48206 (9/18/95); FAC 90-33; 60 FR 49706 9/26/95.

To understand what an IDIQ contract is not, it is important to understand the definitions and uses of the other two Indefinite Delivery forms of contracts, Definite Quantity and Requirements. The usage and definition distinctions become important in analyzing case law interpreting the usage, impact and liability issues associated with each.

A. (§16.2) Definite Quantity Contract

A “definite quantity” contract provides “for the delivery of a definite quantity of specific supplies or services for a fixed period, with deliveries or performance to be scheduled at designated locations upon order.” FAR 16.502(a), ¶ 30,203. This type of contract should be used when it can be determined in advance that (1) a definite quantity of supplies or services will be required during the contract period and (2) the supplies or services are regularly available or will be available after a short lead time. Id.

B. (§16.3) Requirements Contract

A “requirements contract” provides for filling all actual purchase requirements of designated Government activities for supplies or services during a specified contract period, with deliveries or performance to be scheduled by placing orders with the contractor.” FAR 16.504(a), ¶ 30,204.

Requirement contracts are appropriate for acquiring any supplies or services when the Government anticipates recurring requirements but cannot predetermine the precise quantities of supplies or services that designated Government activities will need during a definite period. Id. Unlike Indefinite Quantity contracts, which may include but do not require estimated quantities from the government owner, requirement contracts require the contracting officer to “state a realistic estimated total quantity in the solicitation and resulting contract.” FAR 16.503(a)(1), ¶ 30,204. The estimated quantity may be obtained from records of previous requirements and consumption, or by other means, and should be based on the most current information available. FAR 16.503(a)(1).

Although requiring an estimated quantity schedule in the solicitation, this estimate is not to be construed as a representation to an offeror or contractor that the estimated quantity will be required or ordered, or that conditions affecting requirements will be stable or normal. Id.

II. (§16.4) What Is an Indefinite Delivery Indefinite Quantity (IDIQ) Contract?

In contrast to Definite Quantity and Requirement Contracts, as defined by the Federal Acquisition Regulations, an Indefinite Delivery Indefinite Quantity contract, also known as JOC (Job Order Contract) or TOC (Task Order Contract): “provides for an indefinite quantity, within stated limits, of supplies or services to be furnished during a fixed period, with deliveries or performance to be scheduled by placing orders with the contractor.” FAR 16.504, ¶ 30,295.

Accordingly, the IDIQ contract requires:

· an indefinite quantity

· within stated limits

· of supplies or services

· provided within a fixed period

· scheduled by placing individual orders with the contractor.

Id.

In contrast to Definite Quantity and Requirements contracts, an IDIQ contract may be used when the Government cannot predetermine, above a specified minimum, the precise quantities of supplies or services that will be required during the contract period, and it is inadvisable for the Government to commit itself for more than a minimum quantity. FAR 16.504(b), ¶ 30,205. An IDIQ contract should be used only when a recurring need is anticipated. Id.

To provide an element of certainty in an otherwise uncertain contract mode, the parties are required to follow certain rules as set forth in the FAR. FAR 16.504(a)(1). This section provides:

(1) The contract shall require the Government to order and the contractor to furnish at least a stated minimum quantity of supplies or services and, if and as ordered, the contractor to furnish any additional quantities, not to exceed a stated maximum. The contracting officer may obtain the basis for the maximum from records of previous requirements and consumption, or by other means, the maximum quantity should be realistic and based on the most current information available.

Id.

To ensure that the contract is binding, the “minimum quantity must be more than a nominal quantity, but it should not exceed the amount that the Government is fairly certain to order.” FAR 16.504(2). The contract may also “specify maximum or minimum quantities that the Government may order under each task or delivery order, and the maximum that it may order during a specific period of time.” FAR 16.504(3).

While a stated minimum quantity is typically required, the Court of Federal Claims recently ruled that IQ contracts that lack minimum quantity terms are not unenforceable for lack of consideration if the parties establish a clear intention to be bound. Howel v. United States, 51 Fed. Cl. 516 (2002). If this is found, the court will supply the missing terms in the contract. Id. The Court relied on the Restatement (Second) of Contracts § 204 in Howel to hold that if there is “bargained-for exchange” consideration and the parties intended to be bound by the contract, the contract will be enforceable. Id. In determining the missing minimum quantity terms, the court must set a minimum of more than a nominal amount. Id.

The Board of Contract Appeals also ruled recently that the absence in the contract document of requirements and IQ clauses, and of a designated minimum quantity of supplies and services, “does not end the inquiry into the type of contract the parties intended.” Trans Com Sys. v. United States, ASBCA No. 53,865, 2003 WL 2012889 (May 1, 2003). The Board ruled that the specified terms and conditions of the contract must be reviewed, including the Government’s estimate of the quantity of supplies or services and the parties’ course of dealing. Id. In this case, the Board stated: “[c]onsidered in isolation from other facts, the original statement of work, ‘The Contractor shall provide all personnel . . . and services necessary to perform medical . . . transcription of clinical services dictated by the 95th Medical Group,’ fell short of the exclusivity language necessary for a requirements contract.” But once the Board reviewed the other language in the contract, it was determined that the intent was of exclusivity, and therefore it was a requirements contract.

 

III. Basic Rules of ID Contracting

A. (§16.5) Advisory and Assistance Services

Advisory and Assistance Services, defined at 31 U.S.C. § 1105(g)(1) and FAR 37.201, include services to support or improve organizational policy development, management and administration, program and/or project management and administration, and research and development activities. Id. See also Nations, Inc., Comp. Gen. Dec. B-272455 (11/5/96).

Classified under the TOC (Task Order) form of contracting, FAR 16.503(d) limits the use of requirements contracts for this type of governmental need. Specifically:

· If your requirement is for advisory and assistance services,

· AND the contract will exceed $10 million and three years (including options)

· THEN you cannot use a requirements contract

· UNLESS the agency determines, in writing, that (1) the services are unique or highly specialized and (2) it is impracticable to make multiple awards.

Id.

The limit does not apply if the A & A services are:

· Necessarily incident to other services or supplies, and

· Is not a significant component of the requirement contract.

In addition, if a requirement contract is being utilized for Advisory and Assistance Services, under FAR 16.505(c), the ordering period cannot exceed five years.

B. (§16.6) Task Order or Job Order Contracting

As a reminder, Task Order contracts typically refer to the procurement of non-construction related services, while Job Order contracting typically refers to construction related services.

1. (§16.7) Contract Requirements

Under either TOC or JOC, FAR 16.504(a)(4) sets out certain basic requirements for the contract, including:

· A defined period of the contract, including options

· A total minimum and maximum to be ordered

· Minimum and maximum order limitations (optional)

· A state of the required work

· Ordering procedures, and

· If multiple awards are to be made, the criteria to be used in providing a “fair opportunity.”

FAR Contract clauses for TOC/JOC contracts include: 52.216-27 (Single or multiple awards); 52.216-28 (multiple awards for advisory & assistance services); 52.216-18 (Ordering); 52.216-19 (order limitations); 52.216-21 (requirements); 52.216-22 (Indefinite quantity); 52.216-28 (multiple awards).

2. (§16.8) Minimum Quantity

The minimum quantity required under FAR 16.504(a)(1), (2), and (4)(ii) is required in order to provide the “consideration” that binds both parties. Vernon Edwards, “Task Order Contracting: Understanding and Using Task Order Contracts,” Government Contracting Training and Consulting n.2, at 17 (Jan. 1999). While the minimum quantity must be more than a “nominal” amount, there are no hard and fast rules as to what is “nominal.” The amount may be stated in terms of units, or dollars; and the agency must obligate the funds to cover the minimum at the time of award. Id. But the agency does not have to order the minimum at the time of the award. Id. See also Mac’s Cleaning & Repair Serv., ASBCA 49652, 97-1 BCA ¶ 28,748.

3. (§16.9) Funding the Contract

Although the agency is required to fund the minimum quantity order under the contract at the time of award, this timing may vary under certain facts and circumstances, particularly where the contract involves the issuance of multiple delivery orders under one umbrella JOC or TOC contract. One authority providing guidance on this point states:

A fairly simply generalization can be deduced from the decisions: In a variable quantity contract (requirements or indefinite-quantity), any required minimum purchase must be obligated when the contract is executed; subsequent obligations occur as work orders or delivery orders are placed, and are chargeable to the fiscal year in which the order is placed…thus in a variable quantity contract with no guaranteed minimum -–or any analogous situation in which there is no liability unless and until an order is placed—there would be no recordable obligation at the time of award. 63 Comp. Gen. 129 (1983); 60 Comp. Gen. 219 (1981); 34 Comp. Gen. 459 (1955); B-124901, October 26, 1955 (“call contract”). Obligations are recorded as orders are placed.”

Principles of Federal Appropriation Law, 2nd d. GAO/OGC 92-13 (Dec. 1992), pp. 7-17 to 7-18.

4. (§16.10) Inter-Agency Acquisitions

Under the Economy Act, as covered in FAR Subpart 17.5, agencies may make “interagency acquisitions,” by (1) ordering against another agency’s task order contract or (2) ordering from another office within the agency. If done, the ordering agency is the “requesting agency,” and such order requires a Determination and Findings pursuant to FAR 17.503. The D & F must state that:

· The Interagency acquisition is in the best interest of the Government

· It is more convenient or economic than contracting with the private sector.

FAR 17.503.

5. Potential Problem Areas with JOC Administration

a. (§16.11) Low Bid Factor of Coefficient

An initial sign of potential contract problems is where one contractor’s bid factor is substantially lower than the next lowest bid.

Another issue arises where the coefficient is not based on clearly defined parameters, which in turn creates the potential for the government paying for services not actually performed. Unless otherwise specified, the typical contract states that certain items are included within the overall JOC coefficient, which applies to all projects/task-orders. Therefore, unless performed, the government is entitled to a downward equitable adjustment. Id. The most common oversights include: hydrostatic testing, chlorination of new water lines/taps, mechanical systems balancing, and various testing procedures that are performed as standard industry practice, by code, by law, or by specification. Be sure the contract specifies some basic parameters for the coefficient. An example of one installation’s contract states that the contractor’s coefficient must include, but not be limited to, overhead, profit prime contractor, profit subcontractor, insurance, environmental compliance, taxes, protection of and moving government property, administrative work, as-builts, submittals, price quotations, contractor adjustments to government unit prices, final clean up, wastage factors, permits, licenses and fees, modifications, on-site office and utilities, and quality control inspection. Id. It is thus easy to understand, after reviewing this list, why a low bid factor should be an immediate red flag at the time of bid evaluation.

b. (§16.12) Inconsistent Contractor Line Item Proposal vs. Government Scope of Work

In the JOC system, the contractor uses a line item proposal to derive a bottom line, fixed price to apply to the government’s Statement of Work. The analysis of whether the line item proposal is to be considered in determining whether the contractor supplied the ordered items to the government remains a matter of contract interpretation. See Appeal of Brown & Root, ASBCA No. 44,020, 1995 WL 447135 (July 19, 1995) (holding that wording of the contract conditioned contractor’s required performance upon Statement of Work rather than contractor line item proposal); see also Inspection and Acceptance, JOCKey, U.S. Army Center for Public Works (June 1998) (noting that under Army’s JOC system, it is inappropriate to use the contractor’s line item proposal rather than the government’s statement of work for inspection and acceptance purposes, and stressing important of detailed statement of work).

c. (§16.13) Determination of Unit Price Item Inclusions

The final fixed price for the government’s statement of work is derived from a detailed line item proposal prepared by the contractor, utilizing the unit price items, cost and contractor’s bid factor to arrive at the bottom line, fixed price. It is important for both the contractor and the government contracting officer to verify the accuracy of the line item proposal, with respect to quantities and tasks identified. Typically, unit price books include line items for individual components (i.e., install doorknob), or assembly components (i.e., install door and hardware). A savvy contractor can artificially inflate the line item proposal costs by duplicating unit versus assembly items. Likewise, duplication exists for demolition costs versus remove and replace itemizations; and quantities can be overstated or duplicated. In some instances, contractors may derive pricing from including line items clearly non-applicable to a particular scope of work (i.e., brick and mortar tuckpoint on a residence without any brick). Inspection and Acceptance, JOCKey, U.S. Army Center for Public Works n.39, at 2 (June 1998).

d. (§16.14) Unit Price Book Inaccuracies

The government and the contractor should verify the Unit Price costs at the outset, to ensure the costs reflect the market price in that area. Id.

e. (§16.15) Distinguishing Pre-Priced From Non-Prepriced Items

For Non-Prepriced items, the contractor is typically authorized to charge the fair market price for that work. But the government must double check all notices of NPP items to verify that those items are, in fact, absent from the UPB. Id. If you are dealing with NPP items, be sure to ask for vendor quotes to back up the alleged fair market price requested. Id. at 3. Once the new price is negotiated, it must be added to the UPB book for future use and reference. Id.

f. (§16.16) Quality Standards

Once the government has established quality standards, ensure their delivery by checking line items where specified quality standards are required. If the line item indicates a particular grade of product, or a particular type of installation, which is relied on in deriving the initial cost proposal, then the government needs to ensure that it is receiving the quality for which it has paid.

g. (§16.17) Inaccurate Proposals

This is the prevalent problem with implementing JOC contracting. Some inaccuracy is typical at the initial outset of the project, particularly with parties new to the contract form. But, “if after an initial 6 to 12 months, there is a pattern of abuse, this may be fraud. Doing your homework is the only sure cure.” Id.

 

IV. Preparing the Work Statements for TOC/JOC Contracts

A. (§16.18) Indefinite Delivery Contracts

Under an Indefinite Delivery contract, FAR 16.504(a)(4)(iii) requires a statement of work, specifications or other description that reasonably described the general scope, nature, complexity and purpose of the supplies or services to be acquired under the contract in a manner that will enable a prospective offeror to decide whether to submit an offer.”

B. (§16.19) Performance Based Contracting

In the case of task order contracts, the statement of work for the basic contract need only define the scope of the overall contract. FAR 16.504(a)(4)(iii). The statement of work for each task issued under a task order shall comply with paragraph (b) of this subsection.” FAR 37.602-1-(a).

Pursuant to an opinion of the GAO, Letter from GAO to Secretary of the Army (Jan. 26, 1998):

Statements of work that are too general provide insufficient information for prospective offerors to decide whether to submit a proposal or what to offer to best meet the agency’s needs. Also, inclusion of broad categories of work in one statement of work constitutes a form of bundling, since different kinds of work (or tasks in different geographical or technical areas) are combined into one procurement, and an overly broad statement of work can unjustifiably diminish competition just as bundling does, by deterring businesses, particularly small businesses, from competing for a contract, notwithstanding their ability to perform some of the work at issue. See National Customer Eng’g., 72 Comp. Gen. 132 (1993), 93-1 CPD ¶225; Airport Markings of Am., Inc., et al., 69 Comp. Gen. 511 (1990), 90-1 CPD ¶543. Provisions or conditions that restrict competition (such as bundling) are permitted only to the extent necessary to satisfy the contracting agency’s needs. 10 U.S.C. 2305(a)(1)(B)(ii); National Customer Eng’g., supra.”

B277979

At a minimum, the contract statement of work should include the following:

· Background Information

· Scope of Services

· Period of Performance

· Place of Performance

· Contract Management Requirements

· Contract Quality Assurance Requirements

· Government Furnished Property and Services

· Data and Reports

Vernon Edwards, “Task Order Contracting: Understanding and Using Task Order Contracts,” Government Contracting Training and Consulting n.2, at 26 (Jan. 1999).

Contract Management Requirements should include:

· Points of contact and representation;

· Task Order Planning and Processing, including preparation of estimates and schedules; fact-finding and negotiations; work planning and preparation; and

· Task Order Management Pricing Arrangements.

Id.

V. (§16.20) Pricing

Under Task Order contracting, pricing arrangements may include fixed price, cost-reimbursement, time and materials, labor hour, or for negotiated contracts, any type or combination of types of the foregoing. Vernon Edwards, “Task Order Contracting: Understanding and Using Task Order Contracts,” Government Contracting Training and Consulting (Jan. 1999). “Contracts negotiated under Part 15 [i.e., contracts awarded without using sealed bidding procedures, FAR 15.101] may be of any type or combination of types that will promote the Government’s interest, except as restricted in this part.” FAR 16.102(b).

Cost plus Percentage of cost is not allowed. FAR 16.102(c).

For indefinite delivery contracts, the contract “may provide for any appropriate cost or pricing arrangement under Part 16. Cost or pricing arrangements that provide for an estimated quantity of supplies or services (e.g. estimated number of labor hours) must comply with the appropriate procedures in this subpart.” FAR 16.501-2(c).

A. (§16.21) Government’s Pricing Problem

“Price” establishes a means to assign a dollar value to the services provided. But under TOC or JOC, contract describes only services. Specific work is unidentified at the time of contract award. The costs of performance typically vary with the details per each delivery order. How does the government set its prices? By using price resources (input and output pricing) to price the specific services.

“Output” pricing assigns dollar values to the specific task or job unit to be performed. Typically used in Job Order or Construction contracting, price may be assigned to a job unit, e.g. square foot of painting. Values can be based on industry standards such as R.S. Means.

“Input” pricing assigns a dollar value to “resources,” e.g., a “loaded” or “burdened” hourly labor rate. Vernon Edwards, “Task Order Contracting: Understanding and Using Task Order Contracts,” Government Contracting Training and Consulting n.2 at 40–43 (Jan. 1999).

B. (§16.22) Contractor’s Pricing Problem

Obtaining the contract alone costs the contractor money. This includes the cost of the order-processing apparatus, where multiple delivery orders are expected under the contract. Costs also include the administrative time assisting in the preparation of individual delivery or task orders. The contractor is also required to work with a mixture of fixed costs for various job units, incorporated into burdened hourly labor rates, all based on an indefinite sales quantity. The recommended solution is to use a fixed price contract management line item, i.e., to delineate on a unit by unit basis all tasks to be included in that delivery order, multiplied by the Unit Price and the contractor’s bid factor, to arrive at a fixed price for the work to be performed. Vernon Edwards, “Task Order Contracting: Understanding and Using Task Order Contracts,” Government Contracting Training and Consulting p. 46 (Jan. 1999).

VI. (§16.23) Multiple Awards

Multiple awards are mandatory if:

· the contracts are for Advisory and Assistance Services; and

· the contract is for an indefinite quantity; and

· the contract will exceed three years and $10,000,000 including options;

· unless:

Ø uniqueness or specialization make it impracticable; or

Ø only one offeror is capable; or

Ø only one offer is received.

FAR 16.504(c)(2).

Multiple awards do not apply to requirements contracts, and should not be used when:

· services are unique or highly specialized (sole source)

· single award will yield more favorable terms

· administrative costs will exceed benefits

· tasks will be integrally related

· total estimated value is less than $100,000 for non-commercial items, or $5 million for commercial items, or

· not in the Government’s best interests.

FAR 16.504(c)(a)(i)–(vi). See also Memorandum from Director of Defense Procurement, Use of Multiple Award Task Order Contracts” (4/30/99).

VII. (§16.24) FAR Part 36 and Job Order Contracting

Many of the above regulations deal generically with Task Order Contracting. But in the construction arena, governing Job Order Contracting, the practitioner must take into account the provisions of FAR Part 36. Part 36 deals with “policies and procedures peculiar to contracting for construction and architect/engineer services. It includes requirements for using certain clauses and standard forms that apply also to contracts for dismantling, demolition or removal of improvements.” FAR 36.000, ¶ 30,750.

When a requirement under FAR 36 is inconsistent with another regulation, “this Part 36 shall take precedent if the acquisition of construction or architect-engineer services is involved.” FAR 36.101(b). If an acquisition involves both construction and supplies or services, the contract “shall include (1) clauses applicable to the predominant part of the work.” FAR 36.101(c).

To date, there are no known reported cases reconciling apparent conflicts between FAR Part 36 and the various provisions relevant to IDIQ contracts. But the following areas are noted as potential conflict areas.

Under FAR 36.103(a), “contracting officers shall acquire construction using sealed bid procedures . . .” within the United States, but “negotiation” for acquiring architect-engineer services. FAR 36.103(b). Accordingly, this would imply that mixed pricing arrangements permissible under FAR 16.102(b) would not be permitted for construction contracts. But under FAR 36.207, a combination of lump sum and unit pricing is permissible. Lump sum is preferred, except when:

· large quantities of work such are grading, paving and site preparation are involved;

· quantities of work, such as excavation, cannot be estimated with sufficient confidence to permit a lump sum offer without a substantial contingency, or

· estimated quantities of work may change significantly during construction, or

· offerors would have to expend unusual effort to develop adequate estimates.

FAR 36.207.

Other relevant provisions under FAR 36 include:

A. (§16.25) FAR 36.202 Specifications

Under FAR 36.202, the contracting officers must insure that references in specifications are to widely recognized standards or specifications promulgated by governments, industries, or technical societies. FAR 36.202(b). When brand name or equal descriptions are necessary, the specifications must clearly identify and describe the particular physical, functional, or other characteristics of the brand name items that are considered essential to satisfying that requirement. FAR 36.202(c).

B. (§16.26) FAR 36.204—Disclosure of the Magnitude of Construction Projects

Under FAR 36.204, the government is required to offer the bidder advance notice stating the magnitude of the requirement in terms of physical characteristics and estimated price range. While the government’s estimate is not to be disclosed, the project must nonetheless state a range of estimated magnitude, e.g., between $500,000 and $1,000,000.

C. (§16.27) FAR 36.500, et seq.—Construction Contract Clauses

FAR 36.500, et seq., sets forth various contract clauses to be inserted into governmental construction contracts, including:

· Performance of the work by Contractor (36.501);

· Differing Site Conditions (FAR 36.502);

· Site Investigation (36.503);

· Physical Data (36.504);

· Material and Workmanship (36.505);

· Superintendence by the Contractor (36.506);

· Permits and Responsibilities (36.507);

· Other contracts (36.508);

· Protection of Existing Vegetation (36.509);

· Operations and Storage Areas (36.510);

· Use and Possession Prior to Completion (36.511);

· Cleanup (36.512);

· Accident Prevention (36.513);

· Utility Services (36.514);

· Schedules (36.515);

· Quantity Surveys (36.516);

· Layout of Work (36.517);

· Work Oversight in Cost Reimbursement Contracts (36.518);

· Organization and Direction of the Work (36.519);

· Specifications and Drawings for Construction (36.521);

· Preconstruction Conference (36.522); and

· Site Visit (36.523).

VIII. (§16.28) Modifying a Task Order

A contracting officer can modify a task order, but subject to the following criteria:

· only if the contract permits changes, and only if the changes are in accordance with the procedures of the contract;

· unilateral changes must be within the “scope of the contract”

· changes to the contract may require an “equitable adjustment.”

Vernon Edwards, “Task Order Contracting: Understanding and Using Task Order Contracts,” Government Contracting Training and Consulting n.2, at 83 (Jan. 1999).

IX. (§16.29) Conclusion

In conclusion, the ID contract in general, and the IDIQ contract specifically, is a complicated form of contracting that requires extensive contract administration and supervision. But given its multiple benefits to governmental owners, the practitioner must become familiar with its use and application as the contract becomes more prevalent on a state and municipal level.

X. Representative Cases

A. (§16.30) Defining When a Task Is Not in Scope

Appeal of Brown & Root Services, ASBCA No. 44,020, 1995 WL 447135 (July 19, 1995). In an IDIQ contract, the pricing data used to price individual delivery orders contained references to chutes used for disposal. But the delivery orders (and the included Scope of Work) did not mention such items. B&R claimed for extra costs for the chutes. The court held that:

· the contract was to be interpreted by its express provisions;

· the contract was a lump sum contract based on the accepted delivery order (without integration of the pricing date); and

· B&R was obligated to provide what was contained in the Scope of Work or Delivery Order.

Ervin & Associates, Inc., B-279083, B-279219 (4/30/98). In deciding whether a task order is beyond the scope of the contract originally ordered, GAO will look to whether there is a material difference between the task order and that contract. MCI Telecomms. Corp., supra; see AT&T Communications, Inc. v. Wiley, Inc., 1 F.3d 1201, 1205 (Fed. Cir. 1993). Evidence of such a material difference is found by reviewing the circumstances attending the procurement that was conducted; examining any changes in the type of work, performance period, and costs between the contract as awarded and as modified by the task order, and considering whether the original contract solicitation adequately advised offerors of the potential for the type of task order issued. Ervin & Assocs., Inc., supra, at 8. The overall inquiry is “whether the modification is of a nature which potential offerors would reasonably have anticipated.” Neal R. Gross & Co., Inc., B-237434, Feb. 23, 1990, 90-1 CPD ¶ 212 at 3, cited in AT&T Communications, Inc. v. Wiltel, Inc., 1 F.3d at 1207.

B. (§16.31) Protests of Individual Task Orders

A contractor cannot protest the award of an individual task order pursuant to FAR 16.505(a)(7), but they can file a claim based on breach of contract for failure to provide a “fair opportunity.” FAR 16.505(b)(1).

C. (§16.32) Government Requirement to Honor Acquisition Regulations

G.L. Christian & Associates v. United States, 312 F.2d 418 (Ct. Cl. 1963). This case established the rule that clauses that are required by regulations to be included in a contract are incorporated into such contracts by operation of law. The contract at issue did not contain a clause authorizing the government to terminate the contract for its convenience. But the Armed Services Procurement Regulations required that such a clause in be inserted in certain contracts, including the contract at issue. The court ruled that since the Armed Services Procurement Regulations “were issued under statutory authority, those regulations . . . had the force and effect of law. Because they applied, there was a legal requirement that the plaintiff’s contract contain the standard termination clause and the contract must be read as if it did.”

Condec Corp. v. United States, 369 F.2d 753 (Ct. Cl. 1966) In this case, a contractor submitted its bid on a project for the Army Corps of Engineers in the amount of $1,952,067. Before bid opening, the contractor sent a bid modification via Western Union. Western Union failed to deliver the modification on time. But at the bid opening it was determined that the contractor’s original bid was already the lowest. The contractor attempted to withdraw its bid modification pursuant to §§ 2.304 and 2.305 of the ASPR, arguing that the bid modification was late and should have been disregarded. The Government sought to hold the contractor to the lower bid. The court considered a regulation binding on the government, even though the regulations did not require that a clause to that effect be inserted in the contract. In holding that the contractor was entitled to modify his bid, the court expressly relied on certain language contained in the regulations—even though the regulation was not inserted into the contract nor was it considered a mandatory clause.

American Electric Contracting Corp. v. United States, 579 F.2d 602, 217 (Ct. Cl. 1978). If a governmental agency violates a regulation intended for the benefit of the contracting party, the contract is made in violation of the law and the contracting party is thereby entitled to reformation of the contract.

DeMatteo Construction Co. v. United States, 600 F.2d 1384 (Ct. Cl. 1979). The court held that “[f]ailure of a government contracting agency to abide by a provision of its own regulation is material . . . if the provision is for the benefit of the contractor and there is a causal nexus between the failure and the asserted financial injury to the contractor.”

General Engineering & Machine Works v. O’Keefe, 991 F.2d 775 (Fed. Cir. 1993). A contractor with the United States Navy appealed from a decision of the Armed Services Board of Contract Appeals confirming Navy’s entitlement to reimbursement of $86,775 in material handling fees. The court held that the Navy was entitled to reimbursement based on the contractor’s failure to maintain material handling charges in separate cost pool in accordance with regulatory payments clause included in contract. In its deliberations, the court stated that “[t]he Christian Doctrine applies to mandatory contract clauses which express a significant or deeply ingrained strand of public procurement policy” as well as “less fundamental or significant mandatory procurement clauses if not written to benefit or protect the party seeking incorporation.” It additionally declared that “[f]ederal regulations which are based upon a grant of statutory authority ‘have the force and effect of law, and, if they are applicable, they must be deemed terms of the contract even if not specifically set out therein.”

American Telephone & Telegraph Co. v. United States, 1999 WL 333409 (Fed. Cir. 1999). A contract made in violation of a regulation is not void. The court recognized that “[w]hen a contract or a provision thereof is in violation of law but has been fully performed, the courts have variously sustained the contract, reformed it to correct the illegal term, or allowed recovery under an implied contract theory . . . .”

Mid-Eastern Industries, Inc., 02-1 BSA ¶ 31,657, ASBCA No. 53016 (Nov. 16, 2001). The contractor sought payment of the guaranteed minimum price under the IQ contract. The Board ruled that if the contractor is required to have the capacity to provide not only the minimum, but also the maximum service as established by the IDIQ contract and the government fails to order the minimum guaranteed amount, the contractor is entitled to the minimum guaranteed dollar amount less any amount previously paid for orders performed. The Board determined that under the contract the contractor was obligated to provide and maintain the capability of providing up to the maximum amount of services set forth in the contract. The minimum guaranteed amount was the consideration for the contract and the only available source of recovery for the contractor to maintain its capability.

Hermes Consolidated, Inc., ASBCA No. 52308 (Feb. 15, 2002). The contractor wanted the Government to pay the original minimum that was guaranteed in the contract, but the Board ruled that when the government partially terminates for convenience an amount of services or material to be provided under an IDIQ contract, the original minimum guaranteed amount is also reduced by that amount, even though the termination did not expressly reduce the original contract’s minimum guarantee.

D. (§16.33) Government Duty to Provide Realistic Estimates

Coastal States Petrochemical Co. v. United States, 214 Ct. Cl. 520, 559 F.2d 1 (1977). The contractor was one of several contractors awarded contracts to supply the government with jet fuel, at a time when the Vietnam War was in progress. Shortly after plaintiff’s contract began, combat activities in Vietnam substantially decreased, resulting in the government’s jet fuel estimates being sharply reduced. As a result, the plaintiff’s jet fuel obligation was reduced to 57% of the original estimate. In seeking relief for its resultant losses, the plaintiff’s principal argument was that it had a requirements contract and therefore the government breached the contract by failing to obtain all of its jet fuel requirements from Coastal States. The court rejected this argument holding that the contract was an IDIQ contract and, therefore, the government had not breached its contract by obtaining jet fuel from other suppliers. In so ruling, the court specifically held that when the government contracted with the plaintiff, it had properly based its estimates of future needs on its past experience. Thus, the court tangentially addressed the question of whether the estimates were accurate; the court, in essence, held that the government could not have known at the time of contracting that the Vietnam War would de-escalate, causing a reduction in its fuel requirements.

Applied Devices Corp. v. United States, 591 F.2d 635 (Ct. Cl. 1979). The court held that the provision requiring the government to provide a realistic estimate was incorporated into the parties’ contract by operation of the Christian Doctrine even though there was no FAR clause requiring its inclusion.

DOT Systems, Inc. v. United States, 231 Ct. Cl. 765 (1982). The contractor was awarded an IDIQ contract, which provided a minimum quantity of $500 worth of work and an estimated maximum of $11,689. But the plaintiff received orders of less than 10% of the estimates. The plaintiff argued that he was entitled to compensation for the government’s error in its estimates. The estimates were based on the government’s past needs. The director preparing the estimates consulted with other offices. “The actual estimates were prepared by taking a percentage of the historical data and, when in doubt, adopting a higher figure.” While the court recognized that the government with an IDIQ contract is not held to the same negligence standard as a requirements contract, the regulations do set forth the requirement that the estimate be “as realistic as possible.” The regulations stated that “[t]he maximum may be obtained from the records of previous requirements and consumption, or by other means.” Because the estimates were prepared based on historical data of the entity’s past needs, the agency complied with C.F.R. 1-3.409(c)(1) and therefore there was no breach.

Art Anderson Associates, ASBCA No. 27807, 84-1 B.C.A. 17,225 (1984). Indefinite quantity contract is used where the United States cannot estimate its needs except in terms of minimums and maximums.

Deterline Corp., 89-3 BCA 22,069, ASBCA No. 33,090 (May 19, 1989). The plaintiff-contractor was awarded an IDIQ contract with a $12 million maximum quantity. He contended that he “reasonably anticipated” that the orders would meet or exceed that amount based on the amounts the government had ordered under prior similar contracts and based on the government’s oral representations that they anticipated the orders would “approach the maximum amount.” Although the contractor claimed the government negligently prepared its estimates, the facts established the estimates admittedly were properly based on prior history. Thus, the ASBCA rejected the contractor’s arguments, stating:

The contractor was on notice prior to submitting its bid of the minimum amount it could receive and bore the risk it would be limited to that amount. Even assuming for purposes of this motion that the Government indicated at a pre-bid conference that it anticipated ordering or exceeding the maximum amount, no facts have been indicated, even for purposes of this motion, which would absolve appellant from the terms of the contract which set forth the minimum dollar amount which the Government was obligating itself to order. To interpret the contract as appellant argues would vitiate a major provision of the contract.

Crown Laundry & Dry Cleaners, Inc., 90-3 BCA 22,993, ASBCA No. 39,982 (May 21, 1990). This case involved a mistaken assumption on the part of the contractor that the government would order more than was ordered. The government ordered 66% of the maximum quantity identified under an IDIQ contract. Crown Laundry argued that the government negligently prepared the estimates based solely on the fact that the actual orders were less than the estimate, and based on the disparity between the $85,000 minimum and $991,644 maximum. There was no mention that the government completely disregarded FAR 16.504, or that the government knowingly included a project that was clearly outside the scope of an IDIQ contract. In the 1990 decision, the court held that it would not examine the reasonableness of an IDIQ governmental estimate. But see 29 Fed. Cl. 506 (1993) below.

C.F.S. Air Cargo, Inc., 91-2 BCA 23,985, ASBCA 40,694 (April 30, 1991). The contractor sought an equitable adjustment based on the fact that the government estimates had been grossly overstated. The contractor argued that:

· the estimates were negligently prepared;

· the estimates were not realistic and based on the most recent information available in violation of FAR 16.504(a)(1);

· the Navy was estopped from denying the accuracy of its estimates; and

· the contractor was entitled to relief for mutual or unilateral mistake.

The court merely reiterated the holdings in Deterline and Crown Laundry, that “we do not examine the reasonableness of the estimates in indefinite quantity contracts.”

Medart v. Austin, 967 F.2d 579 (Fed. Cir. 1992). The regulations provided that the government “should base the estimate on the most current information available.” 48 C.F.R. § 16.503(a)(1). A contractor was awarded a requirements contract to supply storage and wardrobe cabinets to several hundred federal agencies. The government prepared the estimates based on the number of units ordered during the previous fiscal year. The actual requirements varied from 24% to 70% less than the estimate. The contractor complained that simply relying on the previous year’s orders to prepare the estimates was unreasonable, and that the use of other methods would have improved the accuracy of the estimates. Although the court rejected this argument, it did so only because it found that the estimate had been made in good faith in that it was based on a method expressly authorized by federal regulations.

Crown Laundry & Dry Cleaners, Inc. v. United States, 29 Fed. Cl. 506 (1993). The court recognized that a government agency may be held liable for failing to provide good faith estimates when it knew that the contractor had to rely on those estimates in formulating its bid. Here, the plaintiff was awarded a contract to provide laundry and dry cleaning services to the U.S. Missile Command at Redstone Arsenal. Soon after beginning performance of the contract, the plaintiff discovered that it was receiving far less work than had been estimated. It complained to the contracting officer, to no avail. After completing the contract, it was determined that the actual requirements were 45% less than the estimate. The plaintiff sought damages as a result of the government’s alleged lack of due care in preparing its estimate. The court noted that “[i]t is settled that a bidder on a government contract is entitled to rely on government estimates set forth in the contract as representing honest and informed conclusions.” Where a government contracting officer knows that the contractor “had to rely on the estimates in the formulation of its bid, . . . the government was required to act in good faith and use reasonable care in computing its estimated needs. The court held that “[w]here a contractor can show by preponderant evidence that estimates it relied on were negligently prepared or were unreasonably inadequate, indicating a lack of due care in the preparation at the time the estimates were made, the government may be liable for resulting damages. The government is not free to carelessly guess at its needs.”

Rice Lake Contracting, Inc. v. United States, 33 Fed. Cl. 144 (1995). The contractor argued that it had a requirements contract and, therefore, the government breached the contract when it failed to purchase the “full complement of services under the contract . . . .” The government contended that the contract was an IDIQ contract. Thus, it did not breach the contract since it had ordered more than 11 times the minimum quantity. The court’s ruling that the government had not breached the contract turned on the fact that this was an IDIQ contract rather than a requirements contract. Because it was an IDIQ contract, the government was not required to purchase all of its requirements from the plaintiff, as plaintiff claimed, and, therefore, the cause of action failed.

Travel Centre v. General Services Administration, 1999 WL 636168, GSBCA No. 14057 (Aug. 18, 1999), and its original decision found at 1997 WL 745049, GSBCA 14057, 98-1 BCA 29,422, 98-1 BCA 29,536 (Nov. 26, 1997. In Travel Centre the Board of Contact Appeals held that the GSA may be held liable for breach of an IDIQ contract for providing grossly inaccurate estimates to bidders when it knows that such estimates are irrational (or recklessly disregards information that would give it such knowledge) and withholds that material information from bidders, even though the government has satisfied its obligation to purchase at least the stated minimum quantity. In Travel Centre, the GSA solicited bids for an IDIQ contract to operate a travel management center for federal agencies in the New England area. The solicitation provided that the successful bidder would be the preferred—but not the mandatory—travel agent in that region. The solicitation further provided estimates of expected business from which the bidders were instructed to base their bids. During the solicitation process, the GSA received notices from the incumbent contractor, Dube Travel, that another contractor had been awarded a separate contract to provide travel services to the Department of Defense and its related entities. The Department of Defense business comprised more than 50% of the anticipated business from the State of Maine and, as a result, the estimates provided in the bid solicitation were “vastly overstated.” The GSA did not notify the bidders of this material information. The contract to provide travel services to Maine and New Hampshire was subsequently awarded to Travel Centre. Travel Centre began performance of the contract, and the GSA ordered more than the minimum quantity of $100. But when the additional anticipated revenue failed to materialize, Travel Centre had to close its business.

The Board of Contract Appeals held that the GSA acted in bad faith by withholding the information about the exclusion of the Department of Defense’s business from the contract and that such bad faith constituted a breach of the contract. It held that bidders are “entitled to rely on Government estimates as representing honest and informed conclusions;” otherwise, the inclusion of such estimates would be merely surplusage. Travel Centre, 1997 WL 745049. It noted that the GSA’s “irrationally-arrived-at estimate was not merely the result of a run-of-the-mill mistake,” but rather the GSA either knew that its estimates were vastly overstated or recklessly disregarded information that would reveal such inaccuracies, and yet it failed to disclose that information to the bidders. Id. In addition, the GSA’s bad faith was further noted by the court in that the GSA knew that bidders had based their bids on the solicitation’s estimates. Furthermore, the court rejected the GSA’s arguments that the solicitation expressly provided that the estimates were “‘solely for informational purposes.’” The Court held: “It is well established that where the Government requires offerors to base their proposals on information it provides, it may not absolve itself of risk merely by labeling data supplied in the solicitation ‘for information purposes only.’” Id. (emphasis added) (citing Cherry Hill Constr. Corp. v. Gen. Servs. Admin., GSBCA 11217, BCA ¶ 25,179). Accordingly, the court held that the “GSA withheld crucial information material to an offeror’s decision whether to submit a proposal at all and, if so, how to structure it. By withholding this information from offerors, GSA exhibited the ‘bad faith’ necessary to sustain a finding of breach of contract.” Travel Centre, 1999 WL 636168. The court further noted that “[t]here is no type of contract; including one for an indefinite quantity, in which the contractor assumes the risk that the Government has intentionally misled it.” Id. (emphasis added). Importantly, the Court characterized the holdings in prior cases such as Dot Systems, Inc. v. United States, 231 Ct. Cl. 765 (1982), C.F.S. Air Cargo, Inc., ASBCA 40694, 91-2 BCA ¶ 23,985, and DynCorp., ASBCA 38862, 91-2 BCA ¶ 24,044 (all suggesting that the Government cannot be held liable under IDIQ contracts where it orders at least the minimum quantity) as standing for the proposition that “Anyone who is dumb enough to rely on the Government’s promises deserves what he gets”—a proposition that the Travel Centre court expressly rejects. Travel Centre, 1999 WL 636168.

Petcham, Inc., 01-2 BCA ¶ 31,656, ASBCA No. 51,687 (Nov. 20, 2001). In an IDIQ contract, the Government is only obligated to order the minimum quantity stated in the contract, not the estimated, guaranteed, or expected amount of service.

Varilease Technology Group, Inc. v. United States, 289 F.3d 795 (Fed. Cir. 2002). The contractor expected the contract to be a requirements contract while the Government believed the language of the contract made it an IDIQ contract. The court ruled that when determining the type of contract, the plain language of the contract should be relied on rather than the expectations of a party. “[T]he intention of a party entering into a contract is determined by an objective reading of the language of the contract . . . .” Id. at 799.

If an IDIQ contract has option periods, such periods does not result in the formation of separate and distinct requirement contracts. “We discern no basis in either the relevant regulations or case law for treating option periods of an ID/IQ contract as separate contracts . . . Minimum quantities are not required to be associated with each option period.” Id. at 799, 800.

J. Cooper & Associates, Inc. v. United States, 53 Fed. Cl. 8 (July 12, 2002). Contractor sued the Government for breach of contract because (1) the government failed to provide work in excess of the minimum quantity and (2) for not awarding all the work in the government’s pre-contract estimate to the contractor. The court stated that an IDIQ contract only requires the government to order a stated minimum quantity of supplies or services, and once that minimum has been met, the government does not need to provide contractor with any more work and may purchase additional supplies or services from any other source it chooses. “An IDIQ contract does not provide any exclusivity to the contractor.” Travel Centre v. Barram, 236 F.3d 1316, 1319 (Fed. Cir. 2001). “The minimum quantity guaranteed … was not nominal, so purchase of that quantity ended the government’s legal obligation.” 48 C.F.R. § 16,504(a)(2).

Under an IDIQ contract, the contracting agency is not under an obligation to terminate the letter contract for convenience, and can allow it to lapse, when no task orders will be interrupted or terminated by the agency by allowing such lapse and when the agency has paid the contractor in excess of the minimum guarantee in the letter contract.

The presumption is that government officials have acted in a lawful manner, and such can only be overcome with clear and convincing evidence.

E. (§16.34) Governmental Tort Liability

Gemsco, Inc. v. United States, 115 Ct. Cl. 209 (1950). “In the interpretation of contracts dealing with ‘indefinite quantities,’ . . . unless all considerations of equity and justice are disregarded, a high degree of good faith should be required on the part of the Government and its agents.” Thus the court held that the U.S. had breached its contract with the plaintiff.

United States v. Neustadt, 366 U.S. 696 (1961). Misrepresentation allegations are claims in tort, which are beyond Tucker Act jurisdiction.

Bird & Sons, Inc. v. United States, 420 F.2d 1051 (Ct. Cl. 1970). Where an alleged “negligent” act of a governmental entity constitutes a breach of contractually created duty, the Tucker Act does not preclude relief. An action may be maintained that arises primarily from a contractual undertaking regardless of the fact that the loss resulted from the negligent manner in which defendant performed its contract.

H.F. Allen Orchards v. United States, 749 F.2d 1571 (1984). Here no contractual duty exists; negligent performance of a non-contractual duty cannot be the basis of a breach of contract claim. Rather, the negligent disclosure of information by the government, when the government had no contractual duty to supply such information, may sound in tort.

H.H.O. v. United States, 7 Cl. Ct. 703 (1985). The Court of Federal Claims has jurisdiction over cases in which it is alleged that the government tortiously breached its contract. “The test for jurisdiction in this Court, under the Tucker Act, is whether there has been a “tortious” breach of contract, rather than a tort independent of the contract. In order for this Court to have jurisdiction over suits of this nature, there must be a direct connection between the Government’s contractual obligations and the alleged tortious conduct. It is not jurisdictionally sufficient if the alleged tortious conduct is merely “related” in some general sense to the contractual relationship between the parties.” Here the plaintiff alleged that the government breached its implied obligation “not to hinder or delay the plaintiff’s performance nor to increase his costs.” The court held that “insofar as plaintiff’s references to defendant’s alleged misrepresentations are merely another way of asserting that a breach of contract occurred,” the court had jurisdiction over such a claim.

Edwards v. United States, 19 Cl. Ct. 633 (1990). The court held that it had jurisdiction over the plaintiffs’ claims that a Postal Service agent made false representations concerning the suitability of a certain tract of land for the construction of post office. Thus, the Court of Federal Claims has jurisdiction over cases in which it is alleged that the government tortiously breached its contract.

Beckering v. United States, 22 Cl. Ct. 30 (1990). The government’s duties were imposed by law, not contract, thus injury resulting from incomplete or insufficient performance of duties, if redressable at all, is actionable only as tort.

LeBlanc v. United States, 50 F.3d 1025 (Fed. Cir. 1995). The court rejected the allegation that the contractor’s claim was based on the False Claims Act rather than the Tucker Act. It found that the Tucker Act did not grant the Court of Federal Claims jurisdiction over tort claim of illegal government interference.

Morris v. United States, 33 Fed. Cl. 733 (1995). The plaintiff was the purchaser of surplus government real estate. He alleged that a government agent misrepresented the tenant’s payment history. The court held that it had jurisdiction over the plaintiff’s claims of misrepresentation, failure to disclose superior knowledge and breach of implied obligation of good faith and fair dealing. In addition, it held that an “obligation of good faith dealing is implied in every contract with the government . . . . Where there is privity of contract, misrepresentation has a contract aspect in addition to its tort aspect . . . . In its contract aspect, a claim of misrepresentation is in large measure analogous to a claim for breach of warranty . . . . [B]inding precedent indicates that the government may be held liable when it makes erroneous representations to those with whom it enters into contractual relations.”

Nematollahi v. United States, 38 Fed. Cl. 224 (1997). The plaintiffs, purchasers of HUD property, alleged that HUD had contractually misrepresented the “existence, nature, magnitude and effects” of hazardous waste in the property’s groundwater. The court held that these misrepresentation claims “revolve around the defendant’s alleged breach of contract, not an action in tort,” and therefore it had jurisdiction over such claims.

F. (§16.35) Equitable Relief vs. Government

Bowen v. Massachusetts, 487 U.S. 879 (1988). The Court of Claims has no power to grant equitable relief. Injunctive relief is equitable relief over which the court lacks jurisdiction. Furthermore, Claims Court does not have the general equitable powers of a district court to grant prospective relief. But regarding the Tucker Act, a limited exception may apply. Equitable relief may be available in the context of a bid protest.

Brookter v. United States, 14 Cl. Ct. 232 (1988). Because inspection and appraisal were not contractual obligations, improper inspection and appraisal cannot give rise to breach of contract claim; claim is one of misrepresentation, which falls outside Tucker Act Jurisdiction.

Bobula v. Department of Justice, 970 F.2d 854 (Fed. Cir. 1992). Regarding the Tucker Act, a limited exception may apply. Equitable relief is available pursuant to the Tucker Act if the equitable relief is an incident of and collateral to a claim for money damages.

ABF Freight System, Inc. v. United States, 2003 WL 1024483 (Fed. Cl.) (Feb. 26, 2003). Three bidders—one received an award, one did not receive an award, and one did not bid—filed a post-award bid protest, challenging the terms of the solicitation. The Court stated: “Injunctive relief for a disappointed bidder is appropriate ‘only in extremely limited circumstances.’” Id. at 2 (quoting CCL Serv. Corp. v. United States, 48 Fed. Cl. 113, 120 (2000) (quoting C.A.C.I., Inc.-Fed v. United States, 719 F.2d 1567, 1581 (Fed. Cir. 1983) (quoting United States v. John C. Grimberg Co., 702 F.2d 1362, 1372 (Fed. Cir. 1983)))). “Because injunctive relief is extraordinary in nature, a plaintiff must demonstrate the right to such relief by clear and convincing evidence. ABF Freight System, Inc., 2003 WL 1024483 at 2.

To obtain injunctive relief, plaintiff must show four things:

1. either a likelihood or actual success on the merits of the case;

2. that it will suffer irreparable injury unless injunctive relief is not granted;

3. that, if the injunction is not granted, the harm to plaintiff outweighs the harm to the Government and third parties; and

4. that no harm will be inflicted on the public interest.

G. (§16.36) Mistake in Bid

Chris Berg, Inc. v. United States, 426 F.2d 314 (1970). A contractor submitted a bid on a contract with the Navy. The bid contained a computation error, which resulted in a lower bid than was intended. The Navy suspected the bid was in error, and the contractor confirmed the error. The contractor sought to modify its bid by increasing it to the correct amount, but the Navy refused, giving the contractor the option of either rescinding the bid or accepting the contract at the lower bid price. The applicable regulations governing mistaken bids provided that the contractor was entitled to modify its bid under these circumstances. The court held that the Navy’s “award of the contract to plaintiff at the bid price, with knowledge of its mistake and over its protest, was a clear-cut violation of law,” thereby entitling the plaintiff to reformation of the contract reflecting the modified bid amount. In so holding, the court stated: “If officials of the Government make a contract they are not authorized to make, the other party is not bound by estoppel or acquiescence or even failing to protest.”

H. (§16.37) Bid Protest

Dynamic Decisions, Inc. v. Dep’t of Health & Human Resources, 95-2 BCA 27,732 (May 4, 1995). The court considered a contractor’s protest of a bid solicitation for an IDIQ contract based on the government’s failure to comply with FAR 16.504(a)(1). It held that the government lacked a reasonable basis for providing its maximum estimated quantity. It also found that the estimate “was not reached because of any established budgetary limitations or because of any true analysis of requirements, but because of the expedience of avoiding a level of review by GSA.” Accordingly, the court granted the bid protest.

ABF Freight System, Inc. v. United States, 2003 WL 1024483 (Fed. Cl. Feb. 26, 2003). For standing in a bid protest case, potential bidder must establish that it had a substantial chance of securing the award. Such suing bidder must be a disappointed bidder—if the bidder received a contract award, then such bidder did not have standing to assert a bid protest. If contractor participated in the bid preparation process, and then did not submit a bid due to the alleged improprieties in the solicitation, such contractor had standing to bring bid protest—it must show it would have had a substantial chance of securing the award if not discouraged by the alleged improprieties. Essentially, bid protesters must show they were themselves injured by improprieties.

Al Ghanim Combined Group Co. Gen. Trad. & Cont. W.L.L. v. United States, 2003 WL 21302931 (Fed. Cl. May 22, 2003). A losing bidder, in protest of the Government’s solicitation of a construction contract, sought injunctive relief requiring the United States to resolicit the contract due to the arbitrariness of the Government’s decisions. For a court to find that the procuring agency’s actions was arbitrary and capricious, the offeror must establish that (1) the Government officials involved in the procurement process were without a rational and reasonable basis for their decision or (2) the procurement procedure involved a clear and prejudicial violation of applicable statues and regulations. “A protester has the burden of proving by a preponderance of the evidence the arbitrary and capricious nature of the Government’s actions or the violation of an applicable procurement regulation.”

________

Ms. Farris received her B.L.A. and J.D., with honors, from the University of Missouri-Kansas City School of Law. She is a past chairperson of The Missouri Bar Construction Law Committee and is a member of the American Bar Association’s national steering committee for the Forum on the Construction Industry, Division 10, Environmental and Legislative. Ms. Farris has litigated IDIQ/JOC contracts from the perspectives of a governmental owner, a general contractor, and a subcontractor. She is a solo practitioner with Farris Law Firm, L.L.C., Kansas City, Missouri.

© Denise E. Farris, Esq. (2003). All rights reserved.
Farris Law Firm LLC, 20355 Nall, Stilwell, KS 66085. Tel: 913-685-3192.
Email: dfarris@farrislawfirm.com Web page: www.farrislawfirm.com.
The above article is provided free for generally informing the reader; and is not intended to provide legal advice. For specific information reader should seek legal counsel licensed to practice law in the state of Kansas.

Missouri Materialmen’s Lien Valid Even Where Materials Removed

Innocent Materialman Has Lien
A recent Missouri case held that a materialman’s lien remained valid even where materials were wholly removed following defective installation by a subcontractor. A seller of concrete delivered material in good condition, but Subcontractor improperly installed it, requiring its total removal. The trial Court improperly denied Seller a mechanic’s lien. “Lien interest attached to the property at the time it provided materials that were used, which does not necessarily mean “a permanent part of the construction.” “The materialman stands in a far different position than a contractor. He has no contractual relationship with the owner and cannot contractually allocate the risk of loss and would likely be unable to insure most risks.”
Bates County Redi-Mix, Inc., Appellant v. Loren D. and Debbie K. Windler d/b/a Windler Backhoe Services, Defendant, Michelle L. Cole, Respondent; and National City Mortgage, d/b/a Commonwealth United, Respondent. Missouri Court of Appeals Western District . 2005

Developing Issues in Lead Based Paint Abatement

LEAD-BASED PAINT ABATEMENT:
DEVELOPING LIABILITY ISSUES
by Denise E. Farris, Esquire*


I. INTRODUCTION

In 1980, it was reported that over 800,000 workers were exposed to airborne lead in the workplace, resulting in such health risks as kidney damage, as well as damage to the peripheral and central nervous systems. [i] In response to the health hazards associated with exposure to airborne lead in the workplace, the Occupational Safety and Health Administration (“OSHA”) developed regulations designed to protect workers from excessive lead exposure.[ii] In addition, contractors working on older project renovations are also subject to compliance with a myriad of other regulatory and statutory requirements designed to protect the worker and public from lead poisoning.

Until recently, the majority of cases addressing liability issues relative to abatement of lead-based paint occurred in the residential landlord/tenant relationship. Unlike its environmental cousins, polychlorinated biphenyls (“PCB”) and asbestos, lead-based paint has remained a relatively unnoticed and remarkably low-key issue in residential and commercial construction. However, numerous medical studies now conclusively link overexposure to lead-based paint to serious long-term health problems.[iii] These studies, viewed in conjunction with the prevalence of lead-based paint in virtually all buildings constructed prior to 1978, render lead based paint abatement a construction liability issue potentially exceeding that raised by asbestos nearly a decade ago. This article addresses construction liability issues related to lead-based paint activities in the residential and commercial construction context, with a particular focus on statutory, regulatory and contractual obligations, licensing requirements, and disclosure requirements.

II. FEDERAL STATUTORY AND REGULATORY ISSUES

Understanding the developing litigation issues related to lead based paint abatement requires an understanding of the various pieces of Federal legislation governing the treatment of lead-based paint and/or lead products. For the past 15 years, the Environmental Protection Agency (“EPA”) and the Consumer Product Safety Commission (“CPSC”) have aggressively banned or significantly reduced lead in gasoline, paint and plumbing products.[iv] This legislation was followed by additional legislation aimed at disclosure of lead-based paint hazards, abatement training, and testing, summarized below.

A. Housing and Community Development Act of 1987

This Act required the Department of Housing and Urban Development to undertake a comprehensive program for testing and abatement of lead-based paint in all public and Indian housing units built before 1978.[v]

B. Residential Lead-Based Paint Hazard Reduction Act

Also known as Title X, §1018 of this law directed HUD and EPA to require the disclosure of known information on lead-based paint and lead-based paint hazards before the sale and lease of most housing built before 1978.[vi] Subtitle B of Title X concerns training and certification of contractors working with lead-based paint hazards.[vii] Under Title X, the Occupational Safety and Health Administration (“OSHA”) developed standards for exposure to lead and protection from exposure to lead for construction workers.[viii] 

C. HUD Lead Paint Disclosure Regulations

HUD regulations regarding the disclosure of lead-based paint hazards are found at 24 CFR 35, entitled “Lead Based Paint Poisoning Prevention In Certain Residential Structures”. The regulations target residential dwellings that were constructed prior to 1978, including common areas in multifamily housing structures and dwellings commonly used by children, such as a child care centers. The effective dates of the regulations are September 6, 1996 and December 6, 1996 for owners of 5 or more dwellings and owners of 1 to 4 dwellings, respectively. The disclosure requirements assure that purchasers and tenants of housing constructed prior to 1978 are notified of the hazards of lead-based paint which may exist on the dwelling; of the symptoms and treatment of lead-based paint poisoning; and of the importance and availability of maintenance and removal techniques for eliminating such hazards. Sellers, agents and lessors must retain documentation of compliance for no less than three years. [ix]

The penalties for non-compliance include fines of up to $10,000 for civil infractions; fines of up to $25,000 and one year in jail for criminal violations; and treble damages plus attorneys fees in private civil suits. Violation of the regulation does not invalidate the sale or lease contract.

D. Lead Based Paint Poisoning Prevention Act (LBPPPA) 42 U.S.C. 4822

Enacted in response to the 1989 HUD Independent Agencies Appropriations Act, the LBPPPA establishes guidelines for testing abatement, cleanup, and disposal of lead-based paint in public and Indian housing. It requires the housing authority to conduct random sample of dwellings and common areas where children live or are expected to live.

E. Worker Safety

The OSHA standards for occupational safety, health and environmental controls, found at 29 C.F.R. §1926, were amended in 1993 under new §1926.62, containing employee protection requirements for construction workers exposed to lead. The OSHA construction standard applies, but is not limited to, (1) demolition or salvage of structures where lead or materials containing lead are present; (2) removal or encapsulation of materials containing lead; (3) new construction, alteration, repair or renovation of structures, substrates, or portions containing lead or materials containing lead; (4) installation of products containing lead; (5) lead contamination from emergency cleanup; (6) transportation, disposal, storage or containment of lead or materials containing lead on the site or location at which construction activities are performed; and (7) maintenance operations associated with construction activities described above.[x]

The Amendment sets maximum limits of exposure to workers, referred to as the Permissible Exposure Limit (“PEL”). No employee may be exposed to lead at airborne concentrations greater than 50 ug/m3 (50 micrograms of lead per cubic meter of air) averaged over an 8 hour period.[xi] If an employee is exposed to lead for longer than an eight hour period in any work day, the employee’s permissible exposure should be reduced by 400 divided by the total number of hours worked in the day.[xii]

The amendment also establishes an “action level”, above which the employer must perform monitoring. If there is any lead presence in the workplace, the employer is required to make an initial determination by monitoring the employee’s exposures to determine whether the employees are exposed to lead in excess of the action level. The action level is equal to thirty micrograms of lead per cubic meter of air averaged over an eight hour day.[xiii] If employee exposure is above the action level and PEL level, the employer must monitor quarterly, continuing until two consecutive measures are at or below the PEL. Employees must also be advised in writing of the employee’s exposure assessment results within 5 working days after its receipt.[xiv] Until the monitoring reflects that exposure limits are at or below the PEL, the employer is required to treat employees performing certain tasks as though they are exposed to lead in excess of the PEL, and to provide those employees with respirators, protective clothing and biological monitoring.[xv]

F. EPA Regulations

EPA’s regulations include, among other requirements, a mandate that all lead inspections, lead hazard screens, risk assessments and abatement activities be conducted by certified personnel in accordance with specific work practices designed to inform and protect the individuals most likely to be exposed to lead. 

Recently, the EPA revised its regulations concerning abatement work practices to add a “de minimus” rule which excludes certain small scale projects involving lead handling.[xvi] Under regulations that went into effect on March 6, 2001, EPA exempted certain projects from the work practice requirements (i.e. occupant protection procedures, clearance testing, use of certified personnel and other similar specialized lead hazard control practices and procedures) for conducting lead-based paint activities under both EPA’s regulations and HUD’s regulations. The exempted projects are those where the paint-lead hazards are less than:

1) Two square feet of deteriorated lead-based paint per room or equivalent;

2) Twenty square feet of deteriorated paint on the exterior building; or

3) Ten percent of the total surface area of deteriorated paint on an interior or exterior type of component with a small surface area. 

G. Other Federal Regulations

In addition, building contractors should be aware that separate federal regulations may have an overriding application to construction projects based upon the ultimate intended use of the facility. For example, building renovations designed to house children of head-start age (i.e. 3 to 5 years old), are subject to 45 C.F.R. 1304.53(a)(8) and (a)(10)(ix), which mandate that any day care center receiving federal funding must be lead-free, or in the alternative, the lead presence must be in an amount deemed “non-hazardous” to the minor occupants.

H. State and Local Lead Abatement Laws 

1. Missouri Lead Abatement Statutes and Regulations

Missouri currently requires lead abatement contractors for any lead abatement project to be licensed. Missouri has also enacted notification and work practice requirements for lead inspection and abatement projects. 

2. Kansas City Ordinance, Chapter 34

Kansas City’s “Lead Poisoning Control” Ordinance, Sec. 34-401 et seq., applies to all buildings or portions of buildings occupied or inhabited by humans. It prohibits the construction, erection, remodeling, or alteration of any dwelling that has exposed lead-bearing substances; or repairing, renovating, or demolishing any dwelling that might result in any person being exposed to lead bearing substances or their dust, debris, or contaminants. It is unlawful to apply any lead-bearing coating (including paint) on any interior or exterior surface of a dwelling, any toy, piece of furniture, or to sell any lead-bearing coating. 

The city has the right to enter into any dwelling to inspect for the presence of lead-bearing substances and has subpoena power to enter in the event that access is denied. If a violation is determined, the owner must submit, within 14 days of notification, a plan acceptable to the Kansas City health authority for remediation of the lead paint. If the plan is rejected, a hearing can be requested. Failure to remediate can lead to prosecution. The penalties can include declaration of the building as a nuisance (including ordering the building to be vacated until remediated), fines up to $500 and imprisonment up to 180 days.


IV. 1997 AIA A201 GENERAL TERMS AND CONDITIONS

In the past, lead-based paint was not considered a “hazardous material” per se. As a Massachusetts court recently held: “[L]ead paint is not hazardous when it remains embedded in a wall; it becomes so only when it is somehow released from the wall and ingested by humans.”[xvii] Reflecting this traditional viewpoint, the 1987 version of the American Institute of Architects AIA A201 General Terms and Conditions, Commercial Construction Contract, defined hazardous materials as including only asbestos and polychlorinated biphenyls (PCB’s). If either asbestos or PCB was discovered by the contractor, the contractor was entitled, upon written notice to the owner, to stop work until the materials were removed or rendered harmless.[xviii] The contractor would also be entitled to recover performance extension and delay damages for the interrupted time. Prior to 1997, no similar provisions existed relative to the discovery of unanticipated lead based paint. This left the contractor in the position of incurring significantly higher performance costs to comply with OSHA regulations on projects with lead based paint, with no corresponding contractual remedy save that of arguing, after the fact, a “changed condition”. Many contractors would also be unable to perform this work for lack of appropriate licensing, or applicable hazardous material insurance coverage.

This problem has largely been remedied through modifications made in the 1997 AIA’s model Construction Contract, A201 General Terms and Conditions. Specifically, the Terms and Conditions have been expanded to broadly include in their definition of hazardous material asbestos, PCBs, or “any other hazardous material”. If discovered, the Owner, following written notice by the contractor, must:

1. Retain a licensed laboratory to verify presence of hazardous material

2. Render the hazardous material harmless

3. Verify that it has been rendered harmless

4. Permit an extension of contract performance time, and

5. Allow the contractor “reasonable additional costs of shut-down, delay and start-up.” [xix]

Contractors who do not use the AIA A201 General Terms and Conditions and are performing on a pre-1978 structure should be sure to check the “hazardous material” definition clause in the contract, to ensure the definition includes lead-based paint.

V. CONCLUSION

The treatment of lead based paint in commercial construction remains subject to continued argument and modification. The “de minimum” exceptions play an important role in determining if or when abatement procedures must be followed. Sometimes these guidelines are ambiguous when applied to specific circumstances. However, contractors are urged to remember that good business practice stresses the importance of safety to the contractor’s workers, as well as to the general public. Accordingly, when facing lead based paint issues, the safest route is resolution of the issue in favor of maximum safety to all involved.


DISCLAIMER

This article provides general coverage of its subject area. It is provided free, with the understanding that the author does not intend this article to be viewed as rendering legal advice or service. If legal advice is sought or required, the services of a competent professional should be sought. The author shall not be responsible for any damages resulting from any error, inaccuracy or omiss


* Ms. Farris acknowledges the assistance of Courtney Lieb in the preparation of this article. Ms. Lieb is a 1st year law student at the University of Missouri – Kansas City School of Law.


[i] United Steelworkers of Am. V. Marshall, 647l F.2d 1189, 1204 (D.C. Cir. 1980).

[ii] Id. At 1202.

[iii] Erio, Mary, “Lead-Based Paint Risk Management in Commercial and Residential Construction”, KCMBA Construction Law Seminar (Kansas City, MO 8/11/98).

[iv] Denton, William J., Esq., “Lead-Based Paint Disclosure Regulations”, KCMBA Construction Law Seminar (Kansas City, MO 8/11/98).

[v] Id.

[vi] Id.

[vii] Id.

[viii] Id.

[ix] Denton, “Lead Based Paint Disclosure Requirements”, supra, fn. 2

[x] 1993 Amendment, Subpart D, Title 29, CFR 1926

[xi] 29 C.F.R. §1926.62(c)(1993).

[xii] Id.

[xiii] 29 C.F.R. at §1926.62(d).

[xiv] Id.

[xv] Id.

[xvi] RSMo 701.316.

[xvii] Dorchester Mut. Fire Ins. Co. v. First Kostas Corp., 1998 WL 90742 (Mass. Super. Ct. 2/26/98).

[xviii] AIA A201 General Terms and Conditions, §10.1.2 (1987).

[xix] AIA A201 General Terms and Conditions, §§10.3.1; 10.3.2; 10.3.3 (1997). See also, Erickson , David R. and Bumb, Cathleen S., “Lead-Based Paint Regulations: A New Concern?”, 18 CONST. LAW. 4 (Oct. 1998).


APPENDIX B

CASE DISCUSSIONS

A variety of liability issues regarding lead-based paint have been addressed in case law since the specific federal, state, and local statutes, regulations, and ordinances were enacted. The following summarizes some of the more recent cases dealing with abatement of lead-based paint in residential and limited commercial settings.

A. Actions Under Federal Tort Claim Act

Lancaster v. United States, 927 F.Supp. 887 (D. Maryland 1996). Tenant of VA Hospital staff housing brought action under Federal Tort Claim Act based on child’s exposure to lead paint. The Court granted the Government’s motion to dismiss finding: (1) prior hospital memo to residents established a policy regarding the lead-paint problem was general and thus did not deprive hospital officials of discretion, and (2) the decision regarding the scope of a subsequent warning to residents was a discretionary one grounded in economic and policy considerations.

B. Actions Against Lead Paint Manufacturer

City of Philadelphia v. Lead Industries Association, Inc., 994 F.2d 112 (3rd Cir. 1993). City and PHA sued lead paint manufacturers to recover costs associated with lead based paint abatement, asserting claims for product liability, negligent product design, strict product liability, negligent failure to warn, breach of warranty, fraud and misrepresentation, indemnification, restitution and punitive damages. The District Court granted Defendants’ motion to dismiss. Affirming on appeal, the court held that that Pennsylvania law would not permit recovery under theories of market share liability, alternative liability or enterprise liability.

C. Actions Against Landlords and Realtors

Williams-Ward v. Pitts, Inc., 908 F. Supp. 489 (D. Mass. 1995). A minor sued the manager of a HUD-owned apartment building for injuries that allegedly resulted from lead paint ingestion. The claims were asserted under the Massachusetts Lead Paint Act and the Court held that the Act was not preempted by any federal law. The Court further found that, under the Act, the manager was not the “owner” and that there was a genuine issue of fact as to the manager’s knowledge that a child under six years of ages resided at the premises that precluded summary judgment.

Davis v. Philadelphia Housing Authority, 121 F.3d 92 (3rd Cir. 1997). A minor, injured by lead poisoning, and his mother sued their landlord and the city housing authority under the Lead-Based Paint Poisoning Prevention Act and Pennsylvania state law. The District Court dismissed the case for lack of prudential standing. However, the Court of Appeals reversed the dismissal and held that the plaintiffs, as successors to the intended beneficiaries of the Act, satisfied the “zone of interest” test for prudential standing. 

Chapman v. Mutual Service Casualty Insurance Company, 35 F. Supp. 2d 699 (E.D. Wisconsin 1999). A minor and his parents brought a negligence suit against real estate agency and vendor alleging faulty inspection of their home for lead-based paint. Overruling defendants Motion for Summary Judgment, the court held that (1) the residential real estate contract’s “as is” clause did not bar claims against the agency for the negligent hiring, supervision, and inspection of contractor hired to paint house in connection with the mortgage loan approval process; (2) the “as is” clause barred claims against the agency for failure to investigate and warn about the presence of lead based paint, but only to the extent those claims were based on duties not imposed by statute or regulation; (3) a genuine issue of fact remained as to whether the agency violated its statutory duty to investigate and warn; (4) that vendor did not have a duty to investigate or warn purchasers about the presence of lead based paint; and (5) vendor did not have a duty to exercise reasonable care in hiring and supervising the contractor hired to paint the house.

D. Actions Against Housing Authorities

Elliott v. Chicago Housing Authority 2000 WL 263730 (N.D.Ill.) Feb. 28, 2000. Mothers of lead-poisoned children brought putative class action against Chicago Housing Authority (“CHA”) for alleged “pervasive and systemic violations” of the federal lead-based paint statutes by failing to inspect for lead paint, to enforce lead paint abatement, and to notify tenants of potential lead-based paint .Plaintiffs were granted (1) mandatory injunctive relief requiring CHA to comply with the federal lead-based paint regulations and (2) an order requiring CHA to establish a fund to medically monitor children exposed to lead-based paint hazards as result of CHA’s failure to comply with federal lead based paint statutes and regulations.

Hurt v. Philadelphia Housing Authority, 806 F. Supp. 515 (E.D. Pa. 1992). Low income housing tenants brought class action against Philadelphia Housing Authority, the City of Philadelphia, HUD, Pennsylvania Department of Health, manufacturers and sellers of lead pigment and paint, and related trade associations to recover damages for lead poisoning. The Court held that (1) the tenants could sue the PHA, but not the City, to enforce the Lead Based Paint Poisoning Preventing Act and the United States Housing Act; (2) the tenants were the intended beneficiaries of annual contribution contract between HUD and PHA; and (3) theories of enterprise liability and market share liability could not be used in suit against manufacturers and sellers.

E. Actions Against Cities

Santiago v. Hernandez and City of New York, 1999 WL 279512 (E.D. NY 4/29/99). Mother brought suit, against New York City and her landlord, on behalf of herself and her infant child for injuries related to child’s lead poisoning. Claims were alleged under the Lead Based Paint Poisoning and Prevention Act, the Housing and Community Development Act; and common law. The City moved to dismiss the claim against it and the Court held that, even through the City was a recipient of federal funds designed to address such hazards, it had no duty to remove lead-based paint hazards in Plaintiff’s home when those hazards were more appropriately dealt with by the landlord.

F. Actions Against Insurers

Campbell v. Metropolitan Property and Casualty Insurance Company (200 WL 297174 (S.D.N.Y.) March 21, 2000). When there are elevated levels of lead in a child’s blood during a time period for which the landlord has liability insurance, the child is deemed to have suffered bodily injury during the policy period and is entitled to policy coverage.

Chapman v. Mutual Service Casualty Insurance Company, 35 F. Supp. 2d 693 (E.D. Wisconsin 1999). A minor, son of the purchasers of home, developed lead toxicity and brought a negligence action against the real estate broker and insurer that issued business-owner’s policy. The Court held that the policy’s “professional services” exclusion did not exclude coverage for broker’s alleged negligence in selecting painter, inspecting his work, and failing to warn purchasers about presence of lead-based paint.

G. Actions Against Contractors: Hazardous Waste Disposal

In Re: Leon Sloan, Sr., J & L Renovation Company and Jimmie L. Furby, 1996 WL 506267, HUDBCA No. 96C106D3, HUDBCA No. 96-C107-D4, HUDBCA No. 96C-108-C5 (1996). HUD suspended, and considered debarring, contractors as a result of alleged (1) irregularities surrounding the clean-up of waste from a lead-based paint abatement project; (2) improper disposal of debris from the project; and (3) failure to adhere to HUD regulations concerning proper protective gear for workers involved in the project. The contractors requested a hearing, at which the Government withdrew the third charge based on changes to the contract. The first charge was dismissed by the judge because the clean-up, although hazardous, was not deemed unsafe due to high levels of lead, which was the basis for the HUD charge. The second charge was also dismissed because the contractors were able to persuade the judge that they would not have improperly disposed of the construction debris if they had known of a recent change in the law that prohibited the dumping. As a result of the hearing, no contractor was debarred and their suspensions were terminated.

H. Contract Disputes

TDS Painting and Restoration, Inc. v. Cooper Beech Farm, Inc., 699 A.2d 173 (Conn. App. 1997). TDS entered into a contract with Cooper Beech Farm for renovation of the main building on the farm. The contract did not set forth lead abatement requirements; however, the majority of the work required exterior painting, with the required work areas to be “covered thoroughly and cleaned up daily”. The owner subsequently withheld payment when contractor allegedly allowed dust and chips from the lead paint to contaminate the surrounding property. The contractor took no lead abatement precautions, other than using tarpaulins and other coverings, but the owner was unable to prove that this was a deviation from industry standards. The Court held that the contractor was not liable for the lead contamination.

The Horrors of Hauling: Or Are You Really Insured

Once upon a time Kindly Equestrian offered to give her friend, and her friend’s horse, a ride to a nearby competition.  The friend was delighted and offered to split the cost of the gas as well as the hotel expenses in return, per Kindly Equestrian’s typical arrangement with persons she transported to shows.

Early the next morning, they loaded their show gear in the Kindly Equestrian’s Blazer, and their two horses, tack, and feed into Kindly Equestrian’s bumper-pull 2 horse Kiefer.  On the way to the show, a car ran a red light and slammed into the passenger side of Kindly Equestrian’s Blazer, which flipped, causing the Kiefer trailer to flip with it.  Kindly Equestrian and friend were severely injured, as were both horses who were then euthanized.  The show gear and tack were also destroyed.  The driver of the car which ran the red light was uninsured.

Once able to leave the hospital, Friend (now labeled “Former Friend”), sues Kindly Equestrian on the grounds that:  (1) Former Friend paid valuable consideration for the service of hauling, and (2) Kindly Equestrian breached the standard of care owed by hauling the horses in a trailer too large for the Blazer pulling it.  Former Friend alleged that “but for” the oversized trailer, the car and trailer would not have flipped when hit, thus making Kindly Equestrian negligently liable to Former Friend for damages including:  (1) Former Friend’s medical expenses, rehab expenses, lost salary, impaired earning capacity; emotional distress and pain and suffering; (2) Former Friend’s damaged show gear and tack; and (3) Former Friend’s dead horse.

Wow.  A terrible accident, you say.  Fortunately, this one is entirely hypothetical, but it’s designed to illustrate how important it is for YOU to determine what insurance coverages you have, and what insurance coverages you NEED, before you ever haul horses.  But sometimes it’s hard to know what issues you need to even raise with your insurance agent on these coverages.  Here’s some help.

  1. What issues are involved?

  2. Was the endeavor business or personal?

    In this instance, while Kindly Equestrian is not in the business of hauling horses, she did agree to accept Friend’s offer to split the gas and hotel expenses in return for the ride.  This is a form of barter, which may be considered compensation for those services, which may constitute a business endeavor profiting Kindly Equestrian.  If  shown that Kindly Equestrian routinely hauls horses for barter or compensation, it may be determined that Kindly Equestrian’s hauling activities comprise a business not otherwise covered under her general auto policy. This in turn may require her to secure business coverage on the auto.

  3. What does Kindly Equestrian’s auto insurance cover?

    Let’s assume that Kindly Equestrian’s Blazer was insured by a rated auto insurance company and its determined it was not being used for a business purpose.  If so, and her coverage amounts were sufficient, that insurance would most likely cover:  (1)  repair or replacement of the vehicle damage; (2) repair or replacement of the vehicle contents, including the show tack which was destroyed; and (3) reasonable personal injury/medical expenses of Kindly Equestrian and Former Friend up to the limits of that particular policy.  However, if the cumulative expenses exceed the value of the policy, Kindly Equestrian is still on the hook for the difference.  In catastrophic injuries (ie spinal cord or closed head injuries, etc.), this can easily be the case.  Also, returning to the business aspect, be aware that most personal insurance policies contain a specific exclusion for business endeavors.  Because the use of an auto, or home in business is different than the use of an auto or home for personal reasons, an insurance company requires particularity in your identification of the use so the company can appropriately assess the risk based on use.  If its determined that Kindly Equestrian was using this Blazer to frequently haul friends for compensation, even though she didn’t consider it a business, Kindly Equestrian may have no coverage where business use was not identified and thus not contemplated under the policy.

  4. What about coverage for tack and horses in the horse trailer?

    Kindly Equestrian did carry separate auto insurance coverage for the horse trailer.  This coverage typically covers repair or replacement of the trailer itself, as well as the damaged tack in the trailer.  However, to Kindly Equestrian’s shock, this trailer coverage may not cover the horses hauled in the trailer.  In many instances, the value of the horses can exceed the value of the trailer and tack. If Kindly Equestrian or Former Friend carried individual Mortality and/or Major Medical policies on their horses, these policies would come into play.  However, Former Friend would still have the ability to sue Kindly Equestrian for the injury to her horse, and Kindly Equestrian would not typically have coverage for these damages.  For this reason, if Kindly Equestrian is going to routinely haul horses, Kindly Equestrian should also consider a Care, Custody and Control policy to cover any potential harm to the horses while in Kindly Equestrian’s care, as well as counsel her friends that they should carry separate Mortality and Major Medical on their own horses.

  5. Does Kindly Equestrian need insurance coverage when we have the Equine Liability Act?

    The biggest misconception people have about the Equine Liability Act is that this Act somehow prevents lawsuits from being filed.  IT DOES NOT.  Anyone can file a lawsuit if they can identify basic elements of a legal cause of action against another.  The Equine Liability Act merely serves as a statutory defense to assist in dismissing frivolous lawsuits.  However, in this instance, the Act would not even apply!  Note that the purpose of the Equine Activity Liability Acts is to prevent frivolous lawsuits related to personal injury to a person which arises out of the inherent risks of equine activities.  The injury to Kindly Equestrian and Former Friend had nothing to do with the horses – it resulted from a car running a red light, and the potential negligence of Kindly Equestrian in mismatching hauling vehicle to trailer.  Likewise, the resulting damage to the trailer and contents arose from the same activity, which had nothing to do with inherent behavior of horses,  thus making the Act inapplicable.

  6. INSURANCE IS IMPORTANT!

    I cannot understand why anyone wouldn’t consider complete insurance coverage essential in every phase of their lives.  Any defense theory, whether legal or statutory,  should never be viewed as a replacement to carrying insurance.  YOUR INSURANCE ESSENTIALLY SERVES AS A PREPAID LEGAL PLAN WHERE YOUR POLICY INCLUDES COST OF DEFENSE!  Look at this from a practical standpoint.  Costs of insurance policies typically run anywhere from a few hundred to several thousand dollars per year, depending on your requirements and the size of your operation.  In the event you are sued, it is difficult for any lawyer to secure a dismissal of the case for much less than $1,000 to $5,000 dollars, a sum which typically exceeds the cost of your insurance premium by thousands of dollars.  Why?  In order to dismiss a case, the lawyer must review the legal documents filed, prepare required legal responses to be filed with the court, perform legal research to identify and brief the case law which supports a dismissal (if any), interview witnesses to secure factual support for the brief,  draft and file the brief asking for dismissal, and then appear and argue the dismissal motion before the court.  To this must be added various phone calls between the lawyers and court regarding time frames, deadlines, mandatory discovery scheduling, as well as out of pocket costs including copies, telefaxes, filing fees, delivery fees, travel expenses, expert witness costs, etc.  If you have no insurance, you pick up these costs.  If you have insurance, your insurance company picks up these  costs assuming you have complied with all terms of your policy.  Thus there is NO SITUATION WHERE YOUR INSURANCE POLICY DOES NOT REPRESENT ONE HECK OF A DEAL IF YOU ARE SUED!

 

In summary, many of us haul horses with no thought as to our exposure or our insurance coverages.  In the above example, we see that Kindly Equestrian should have considered:  (1) personal auto insurance for the Blazer; (2) potential business use coverage for the Blazer; (3) potential equine Commercial General Liability coverage if she engages in these kinds of activities for compensation on a regular basis; (4) separate auto insurance coverage for the trailer and physical contents; and (5) Care, Custody and Control equine insurance for the horses hauled.  Based on this article, isn’t it time you call your various agents to be sure you’re properly covered before you haul another horse?  (And oh, by the way, in addition to your insurance coverages, it’s never a bad idea to have your friends sign a liability waiver and release if you agree to haul their horses, especially when you’re doing it as a favor!)

 

This article provides general coverage of its subject area.  It is provided with the understanding that the author, publisher and/or publication do not intend this article to be viewed as rendering legal advice or service.  If legal advice is sought or required, the services of a competent professional licensed in your state should be sought.  The author and the publisher shall not be liable for any damages resulting from any error, inaccuracy or omission contained in this publication.

 

© Denise E. Farris (November 2004).  All rights reserved.  This article may not be reprinted nor reproduced in any manner without the express permission of the author, who can be contacted at: Denise Farris, Farris Law Firm, L.L.C., 20355 Nall, Stilwell, KS  66085.  Tel: 913-685-3192. Fax: 913-685-3292. Email: dfarris@kc.rr.com.

Compounding Conundrums: New AAEP Guidelines

Reprinted Courtesy of Equine Veterinary Management Magazine (Summer 2005)

LEGAL EASE//EVM SUMMER 2005

Click here for a .pdf version of this article in Equine Veterinary Management magazine.

 

COMPOUNDING CLARIFIED

Gain insight on the new AAEP guidelines on compounding drugs with this in-depth report.

BY DENISE E. FARRIS, ESQ.

 

On the surface, veterinary compounding–that is, preparing a multi-ingredient drug from generic or trade-name pharmaceutical products for animal use under veterinary care–appears to be a straightforward practice. However, it remains a hotly contested issue in both courts and administrative halls, and among practitioners and their clients and patients.
Recognizing that compounding continues to serve a useful, albeit controversial, function, the American Association of Equine Practitioners recently published a set of guidelines, which, it’s hoped, will clarify the existing compounding confusion. Here, we’ll identify those guidelines (see page xx), as well as give you their legislative and legal precedent.

 

Compounded-Drug Scenarios

According to the International Academy of Compounding Pharmacists, there are many situations that might require pharmacists to compound medications for animal patients. These include:

 

  • Discontinued products. Under this scenario, a pharmacist may compound commercial medications that have been discontinued from the market for reasons other than safety or effectiveness, therefore otherwise unavailable.
  • Product integrity. A pharmacist may use bulk active pharmaceutical ingredients (APIs) to compound medications in cases where using a commercially available, finished product as the ingredient source could add unnecessary excipients to the medication and increase the risk of contamination or yield a product that isn’t concentrated enough to offer proper compliance.
  • No alternative therapy. One of the more common scenarios; here, a pharmacist compounds medications using bulk APIs when there’s no commercial alternative to treat the disease state or condition treated by the compounded medication.
  • Patient compliance. Also prevalent in the veterinary industry; in this case, a pharmacist compounds medications for animal patients to make it easier for horse owners to administer medications to their horse. This compounding often involves flavoring a medication or changing the dosage form.

 

Some scenarios involving compounding are so subtle they might not be immediately recognized. Veterinary compounding might refer to combining two injectible medicines into one syringe application. Or, it can apply to the administration of potassium bromide to a patient that suffers from severe brain seizures and would otherwise die without it. Or, it might refer to an Internet product represented to be antibiotic that upon further testing proves otherwise.
It’s these contradictory applications–met by equally contradictory regulations–that have given rise to the current confusion over compounding, its legitimacy, effectiveness and exposures.

 

A Complex History

To understand the context for compounding drugs as it relates to equine veterinary medicine, we first must look at the history and legal precedents of the practice in human medicine.

Compounding has been an integral part of the development and ongoing practice of pharmacology since mankind first discovered medicinal use of certain plants and minerals. As such, compounding was and continues to be taught as part of the standard curriculum at most pharmacy schools.

The practice recognizes that it’s possible to custom-create specific medications for specific patients that wouldn’t otherwise be commercially available, such as medication for a patient who’s allergic to an ingredient in a mass-produced product. Accordingly, compounding regularly has been allowed and regulated by the various states as part of their regulation of pharmacies.

The historical and beneficial utilization of compounding in human pharmacology was recognized as recently as 2002 by the United States Supreme Court in the case of Tommy G. Thompson, Secretary of Health and Human Services, et. al. v. Western States Medical Center, et. al. In that decision, the Supreme Court held that a statutory ban on advertising compounded drugs–as set out in 21 USCS §353a of the Food and Drug Administration Modernization Act of 1997–represented an unconstitutional violation of compounding pharmacies’ free-speech rights under the First Amendment, where compounding was legally permissible and commercial advertising served a useful function in disseminating information about the product.

Although this recent Supreme Court case was based on First Amendment issues related to commercial free speech and arguably deals with compounding in human medicine, it contains a concise history of the evolution of compounding and its relevant regulations, which also apply to compounding in veterinary medicine.

The case defines “drug compounding” as “a process by which a pharmacist or doctor combines, mixes, or alters ingredients to create a medication tailored to an individual patient’s needs.” The case explains the treatment of compounding under the federal Food, Drug and Cosmetic Act of 1938, which regulates drug manufacturing.

Under the FDCA, “No person shall introduce or deliver for introduction into interstate commerce any new drug, unless an approval of an application filed [with the FDA]…is effective with respect to such drug.”

A “new drug” is defined as: “Any drug…not generally recognized, among experts qualified by scientific training and experience to evaluate the safety and effectiveness of drugs, as safe and effective for use under the conditions prescribed, recommended, or suggested in the labeling thereof.”

Section 360b of the FDCA applies the regulations to animal drug compounding by stating: “No one may sell a new animal drug, or feed containing a new animal drug, without the approval of the Food and Drug Administration.”

For the first 50 years following enactment of the FDCA, the FDA generally left regulation of compounding drugs to the states. As a result, some states required all licensed pharmacies to offer compounding services. Other states allowed pharmacists to provide compounded drugs to patients only upon receipt of a valid prescription from a doctor or other medical practitioner licensed to prescribe medication. Where the regulations varied from state to state, pharmacists continued to provide patients with compounded drugs subject to various interpretations of the FDA regulations, and without FDA approval of those drugs.

The FDA eventually became concerned that some pharmacists were manufacturing and selling drugs under the guise of compounding, thereby avoiding the FDCA’s “new drug” requirements. The FDA could’ve elected to implement criminal or administrative sanctions against the prescribing veterinarians or pharmacies providing compounded medications. However, recognizing the benefit of compounding in specific circumstances, the FDA elected instead to implement procedures that restricted compounding pharmacies access to bulk drug ingredients necessary for the compounding process.

Thus, in 1992, in response to what it perceived to be a growing abuse and circumvention of FDA manufacturing regulations, the administration issued a Compliance Policy Guide, which announced that the FDA may “in the exercise of its enforcement discretion, initiate federal enforcement actions…when the scope and nature of a pharmacy’s activities raises the kinds of concerns normally associated with a manufacturer and…results in significant violations of the new drug, adulteration, or misbranding provisions of the Act.”

Several years later, Section 503a of the Food and Drug Administration Modernization Act of 1997 was enacted to specifically address the FDA’s concern of mass-manufacture of compounded medications. Under this section, compounded drugs were exempt from FDA-approval requirements, but only where the providers of those drugs refrained from advertising or promoting particular compounded drugs, and only where the manufacturing was in quantities small enough to meet the “one patient, one prescription” test. (ep)

Thus, in the above historical context, the amount of bulk ingredients on hand for the manufacture of a compounded medicine gave rise to the appearance of “mass manufacture” more akin to new drug development rather than single-patient or single-circumstance compounding.

 

Testing, Testing  

The stringent requirements of the FDCA drug-approval process is the underlying basis for the current compounding confusion. Under testing and approval regulations of the FDA, new medications–called “pioneer drugs”–undergo a rigid testing process designed to determine whether the drug is safe, effective, and susceptible to side effects in both the short and long terms.

In determining whether or not a drug is safe, the manufacturer is required to submit the drug to extensive safety studies. This testing analyzes potential side effects and effects of overdosing before a product is introduced into the market. The testing also confirms that the manufacturing of the drug is subject to stringent industry standards to ensure ongoing purity and safety. Finally, the drug is monitored over a period of time to ensure there are no undisclosed long-term side effects in terms of patient reaction to the drug or the manner in which it’s administered.

Obviously, the detail involved in the development and FDA approval of pioneer drugs, is extensive, time consuming and costs in the millions. Companies devoting time, resources and money to new drug development are entitled to recoup their investment through lucrative and protected drug patents. However, these patents are time-limited. When the patents expire, competitors are allowed to use similar formulas to create generic substitutes.

Although bypassing the years of testing involved in pioneer-drug development, generic drugs still require compliance with all FDA manufacturing standards to preserve integrity, purity and consistency. Yet both forms–pioneer and generic–are FDA-approved drugs.

In comparison, the compounded drug is not FDA-tested, not FDA-approved and not subject to any form of manufacturing oversight that serves as a standard for purity, integrity, consistency and safe application. For this reason, the use of compounded drugs is a form of “last hope” treatment in situations where no FDA-approved pharmaceutical is available to adequately address the presenting medical situation. And this is why such medications are subject to stringent requirements that ensure they won’t be passed onto an unsuspecting marketplace in the guise of an FDA-approved substance.

 

New AAEP Guidelines

With these principals in mind, the new AAEP guidelines can serve as a reliable roadmap in determining when–and when not–to rely on compounded medications in your practice. These guidelines suggest that you should verify that the use of compounded medications is covered under your existing liability policy and whether such coverage is subject to special restrictions.

These guidelines also suggest that–as a regular practice–you shouldn’t prescribe compounded medications without fully disclosing their unique characteristics to the client. To comply with the latter suggestion, you can simply provide the client with a copy of the guidelines for their review, secure his or her signature, date the form and then permanently place the form in the client’s file.

Following is a paraphrased version of the recently released AAEP’s Drug Compounding Task Force Position Paper. For the original version, visit www.aaep.org.

 

Recognize the differences between FDA Pioneer Drug, Generic Drug and Compounded Drug:


* FDA Pioneer Drug:

A drug that has undergone the scrutiny of blinded controlled studies to demonstrate safety and efficacy in accordance with federally mandated Good Laboratory Procedures. The active ingredient and product were manufactured under federally mandated Good Manufacturing Practices in federally inspected plants. Therapeutic consistency, product quality, accurate drug shelf life and scientifically substantiated labeling are all federally mandated on these products.


* Generic drug:

A generic drug is bioequivalent to a brand-name drug in dosage form, efficacy, safety, strength, route of administration, quality and intended use. Generic drug labels display an ANADA # or ANDA # signifying FDA approval of a generic animal drug or human drug, respectively. Generic drugs and their active ingredients also must be manufactured under GMP in federally inspected plants.


* Compounded drug:

Any drug manipulated to produce a dosage-form drug (other than that manipulation provided for in the directions for use on the labeling of the approved-drug product).

  1. Understand that use of bulk drugs in the preparation of compounded medications is, under strict interpretation of the Federal Food Drug and Cosmetic Act, illegal because it results in the production of an unapproved new animal drug. Preparation, sale, distribution and use of unapproved new animal drugs are in violation of the Act.

However, the preparation of compounded medication from bulk drugs may be permissible in medically necessary situations but only where there’s no approved product available, the needed compounded preparation can’t be made from an FDA-approved drug, and where the compounding involves only FDA-approved drugs in compliance with federal extra-label drug use regulations subject to the rules and regulations set forth by the appropriate governmental regulatory bodies that pertain to the country or province where the veterinarian practices.

  1. Legal compounding requires a valid veterinarian-client-patient relationship, with its use limited to unique needs in specific patients, limited to situations in which a physiological response to therapy or systemic drug concentrations can be monitored, or situations for which no other method or route of drug delivery is practical.
  2. Remember that compounded drugs haven’t been evaluated by the FDA approval process for safety, efficacy, stability, potency and consistency of manufacturing. For this reason, you:

> Cannot assume that compounded drugs are consistent from one batch to another.
> Cannot assume that the compounded drugs contain the stated amount of drug substance or the desired drug substance.
> Cannot assume that the compounded drugs are safe and efficacious for the intended use.

  1. Remember that compounding pharmacies operate in a dynamic regulatory situation; laws, regulations and guidelines might vary widely from state to state. For this reason, make sure the compounding pharmacy you use is licensed in the state in which you practice.
  2. Proactively seek to educate yourself on regulations concerning compounded medications.
  3. Beware of pharmacies using trademarked brands in their literature to promote “look-alike” compounded products.
  4. Beware of firms that appear to disregard federal, state and local laws, regulations and guidelines concerning disposition of compounded drug products.
  5. Understand that compounding drugs to mimic licensed, FDA-approved drugs is illegal.

> You cannot use compounded “look-alikes” as substitutes if there’s an FDA-approved product in the appropriate dosage form that can be used for the specific patient indication.
> A decision to use compounded products in lieu of appropriate FDA-approved products is illegal and may jeopardize the patient and the veterinarian’s liability insurance.

  1. Contact your state pharmacy boards concerning the reselling of compounded products–some state boards reportedly require compounded drugs to be dispensed at cost; others allow a regular markup.
  2. Consider the legal, ethical and clinical ramifications when making recommendations concerning the use of compounded medications for their patients. You should:

> Provide information about the benefits and risks of compounded drugs, as it’s important to an owner’s decision about therapy.
> Understand the concept of “Standard of Care.” One acts below the standard of care when he/she fails to exercise the level of care, skill, diligence and treatment that’s recognized as the standard of acceptable and prevailing veterinary medicine.

  1. Understand your professional liability policy may or may not respond to allegations of negligence arising from the use of compounded drugs. If you’re insured with AVMA-PLIT, you can review comments at www.avmaplit.com.
  2. Don’t miss the opportunity to form a relationship with a pharmacist experienced in compounding who, when medical necessity exists for a specific patient, can produce the best possible compounded product and discuss related product expectations. (bug)

 

Denise E. Farris is a litigator practicing equine, insurance, defense and construction law in the Kansas City area. She’s a nationally known equine-law attorney and, in addition to writing numerous articles, has been a featured speaker at local, state and national symposiums, including the National Equine Law Practitioner’s Conference, the National Farrier’s Convention, the National Multiple Trail Users Conflict Symposium and the North American Trail Ride Conference. She’s an avid equestrian who competes in endurance and competitive-trail riding events.   

 

DISCLAIMER: This article provides general coverage of its subject area. It’s provided free, with the understanding that the author, publisher and/or publication do not intend this article to be viewed as rendering legal advice or service. If legal advice is sought or required, the services of a competent professional should be sought. The author and publisher shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this publication.

 

© Denise E. Farris, Esq. All rights reserved. This article may not be reprinted or reproduced in any manner without prior written permission by the author. Contact: The Farris Law Firm, LLC, 20355 Nall, Stilwell, KS 66085; (913) 685-3192; FAX (913) 685-3292; e-mail, dfarris@farrislawfirm.com.