A recent decision in SBA Contracting, LLC, ASBCA No. 63320 (Oct. 3, 2023) provides an important reminder for government contractors to carefully consider the volatility of market conditions before submitting firm-fixed price contract proposals to the Federal Government.
The U.S. Army (Army) awarded a firm fixed price commercial services contract to Sama Bna Aliraq Company (SBA) to lease and maintain various non-tactical vehicles (Contract). After award, SBA repeatedly attempted to modify the Contract, including, pricing, delivery dates, and vehicle condition, due to an alleged shortage of required vehicles in the area. Ultimately, SBA only delivered 1 contract-compliant vehicle (of the 121 vehicles required).
The Army terminated SBA for default based on SBA’s failure to deliver contract-compliant vehicles in a timely manner. SBA appealed its termination to the Armed Services Board of Contract Appeals (ASBCA or the Board), requesting that its termination be converted to one for convenience. SBA’s appeal was largely based on its claim that there was a market shortage of vehicles in the area which prevented timely delivery of contract-compliant vehicles.
The Board rejected SBA’s market shortages claim, holding that SBA was bound to deliver the required vehicles per the terms of the firm-fixed price contract. The Board emphasized that it “has consistently rejected unexpected market shortages as an excuse for default [and that…] ‘[m]arket shortage is not an excusable cause for nonperformance.’” Importantly, the Board left the door open for future contractors to excuse non-performance based on impossibility or commercial impracticability. Here, the ASBCA found that SBA failed to show that it was impossible to obtain contract-compliant vehicles when SBA had, in fact, “committed to do so in its proposal and offered, post-award, to do so for additional compensation.” Moreover, the SBA had failed to provide information demonstrating that the delivery of vehicles was commercially impracticable.
A firm-fixed price contract shifts maximum risk and full responsibility for costs to contractors. The SBA decision serves as an important reminder for contractors performing firm-fixed price contracts to review the contract carefully prior to bidding and to be prepared to deliver regardless of a change in market conditions. While exceptions to this rule exist, they are narrow, and cannot be relied on by prospective government contractors.