[00:00:00] Speaker 02:
Our next case this morning is number 23-1430, MPG West, LLC versus Secretary of Defense.

[00:00:59] Speaker 04:
I may please the court.

[00:01:01] Speaker 04:
My name is Yuki Haraguchi on behalf of the appellant MPG West.

[00:01:05] Speaker 04:
Your honors, we're here today asking this court to reverse the decision of the Armed Services Board of Contract Appeals that decided that the Defense Commissary Agency, DECA, did not breach any of its requirements or any of its duties under requirements-type contract with MPG West.

[00:01:22] Speaker 04:
I think, your honors, that this case more broadly asks questions about to what extent the government

[00:01:29] Speaker 04:
can force an ill-conceived contract on a contractor to that contractor's ruin.

[00:01:34] Speaker 02:
Why not?

[00:01:36] Speaker 02:
I mean, you know, the fact that the contract is a bad deal doesn't mean the government is responsible for that.

[00:01:45] Speaker 02:
They're not representing, when they put a contract out for bid, they solicit bids that the contract will be profitable, right?

[00:01:53] Speaker 02:
There's no case that says that.

[00:01:55] Speaker 04:
I agree, Judge, that

[00:01:58] Speaker 04:
The issue isn't necessarily that the contract needed to be profitable.

[00:02:02] Speaker 04:
But the government does have restrictions on its actions, the way it conducts the contract, the way it builds the contract, so that the contract can work.

[00:02:13] Speaker 04:
Here, in a requirements-type contract, the limitations broadly are that the government has to act in good faith.

[00:02:20] Speaker 04:
But specifically, they have to act in a way that does not avoid their contractual obligations,

[00:02:27] Speaker 04:
that they're not reassessing the balance of disadvantages and advantages on the parties, or in a way that creates undue risk of economic hardship for the contractor.

[00:02:40] Speaker 04:
And that's exactly what we have here, a situation where... What case says that?

[00:02:47] Speaker 04:
Judge technical assistance, international, corporate versus United States.

[00:02:52] Speaker 04:
The Federal Circuit case is one of those.

[00:02:57] Speaker 00:
I read the board's opinion here to a certain degree about this theme of that MPG could have taken steps to reduce its damages and its harm, right?

[00:03:09] Speaker 00:
Like it could have sourced locally.

[00:03:13] Speaker 00:
That it said it was going to source locally, and then ultimately it never did.

[00:03:19] Speaker 00:
And also that it could have, with respect to the bagged salad requirement, I guess,

[00:03:26] Speaker 00:
It could have gone to the government earlier and said, hey, this just isn't going to work.

[00:03:34] Speaker 00:
This is not feasible.

[00:03:35] Speaker 00:
We can't do this.

[00:03:37] Speaker 00:
And so how do you respond to that kind of underlying theme?

[00:03:42] Speaker 04:
Well, Your Honor, in respect to the question of whether NPGOS was able to source locally, they were to some extent.

[00:03:51] Speaker 04:
It wasn't entirely an import process from overseas, mainly from the United States.

[00:03:56] Speaker 04:
On the bagged salad question, the government knew that the prices of bagged salad were going to go up.

[00:04:05] Speaker 04:
The $38 million annual transportation subsidy was removed.

[00:04:10] Speaker 04:
The contract specified that the bagged salad had to be Fresh Express, which is an American company.

[00:04:15] Speaker 03:
So the only way that... That's because you specified, you asked for Express.

[00:04:21] Speaker 04:
Yes, Your Honor, that's correct.

[00:04:22] Speaker 03:
That's correct, Your Honor.

[00:04:28] Speaker 04:
But the assumption picking Fresh Express was that the contractor would be able to

[00:04:34] Speaker 04:
recoup its costs because this is a fixed-price contract.

[00:04:36] Speaker 03:
I'm just on terms of whether the contract can work.

[00:04:39] Speaker 03:
The contract only was novated to EKK on the one state and to Eater Harvest on the other.

[00:04:47] Speaker 03:
But the record shows that before the novation, both of them were performing the contract without any problems.

[00:04:55] Speaker 03:
So how can you say that the contract didn't work?

[00:04:59] Speaker 04:
Well, Your Honor,

[00:05:02] Speaker 04:
The novated contractors.

[00:05:04] Speaker 03:
I'm talking about the time period when those two, like apparently subs, took over the contract.

[00:05:11] Speaker 03:
And the record shows they took over the contract.

[00:05:13] Speaker 04:
That's correct.

[00:05:14] Speaker 03:
And had no problem performing.

[00:05:17] Speaker 04:
Judge, I can't really speak to whether they had no problems performing.

[00:05:19] Speaker 03:
Well, that undercuts your theory that the contract can't work.

[00:05:23] Speaker 04:
Well, so many of the problems.

[00:05:24] Speaker 03:
And the contract allowed for local sourcing of bagged salad.

[00:05:30] Speaker 03:
And your client even went to one company sort of hoping at Anna Song in Korea, hoping to be able to get it done.

[00:05:38] Speaker 03:
And the problem was Anna Song, you picked the wrong guy.

[00:05:41] Speaker 03:
They couldn't get the 109 group to sign off on what they were doing.

[00:05:47] Speaker 03:
But there isn't any showing that local sourcing was unavailable.

[00:05:51] Speaker 04:
But when the contract was awarded.

[00:05:53] Speaker 03:
Correct.

[00:05:53] Speaker 03:
There's no showing that local sourcing was unavailable.

[00:05:56] Speaker 03:
And if local sourcing was available, then the

[00:05:59] Speaker 03:
The cost of transporting is irrelevant.

[00:06:04] Speaker 03:
So the fact that you chose to continue, and also the contract provided because the bagged salad was embargoed, the contract clearly provided as to any embargoed item, you could go to the government and say, hey, wait a second, I need a substitute, I need something else.

[00:06:22] Speaker 03:
No evidence that you asked for that.

[00:06:24] Speaker 03:
So I found it hard to accept your argument that there was a commercial impractability here.

[00:06:31] Speaker 04:
The problem, Judge, is the prices at the end.

[00:06:33] Speaker 04:
The prices that the buyer of the government was willing to pay.

[00:06:36] Speaker 03:
So let me just also, so I understand the way it worked.

[00:06:41] Speaker 03:
You signed onto a contract whereby each week, the folks on the ground out there would decide what the requirements were going to be for that week.

[00:06:52] Speaker 03:
Yes, that's correct.

[00:06:54] Speaker 03:
So that was the adjustment of requirements.

[00:06:57] Speaker 03:
And you agreed that the person who's deciding what the requirements are going to be can take price into consideration.

[00:07:06] Speaker 03:
And they can either say, well, we're just not going to order any of that.

[00:07:09] Speaker 03:
Or they can say, well, if you'll lower the price, then we'll buy some.

[00:07:15] Speaker 03:
That's the contract you entered into.

[00:07:16] Speaker 03:
Plus, you agreed to have a undercut

[00:07:22] Speaker 03:
the lower domestic prices even more than the contract on its face required.

[00:07:28] Speaker 03:
The contract initially said on something like 15% was what we're looking for for undercut.

[00:07:35] Speaker 03:
That's right.

[00:07:35] Speaker 03:
And you went up to 30%.

[00:07:36] Speaker 03:
So you said we can do even better than that, right?

[00:07:38] Speaker 04:
And they were able to.

[00:07:39] Speaker 04:
MPG West was able to.

[00:07:41] Speaker 03:
And in many cases, there's no question about that.

[00:07:43] Speaker 04:
The board itself decided that the patron savings requirement, the market capacity surveys, the requirements for

[00:07:50] Speaker 04:
MBGUS to provide some type of savings were met.

[00:07:53] Speaker 04:
That's not an issue here on appeal.

[00:07:57] Speaker 04:
I think the real question, the real problem is that MBGUS assumed, because that's what the contract dictated, that it could recover its costs because they were supposed to include all of its costs into the fixed prices.

[00:08:09] Speaker 04:
The problems arose when, during the weekly price review, the government would basically dictate the prices that they wanted to pay.

[00:08:16] Speaker 04:
Setting aside what the actual costs were, they were basically

[00:08:21] Speaker 04:
ignoring the fixed price.

[00:08:23] Speaker 03:
Well, they were supposedly worried about the end cost to the patron.

[00:08:26] Speaker 03:
That's exactly right.

[00:08:28] Speaker 03:
And they were granted the liberty to do that in the pricing provisions in the contract.

[00:08:33] Speaker 04:
Judge, there I would disagree.

[00:08:35] Speaker 04:
There's nothing specific in the contract that sets what that briefly price review criteria would be.

[00:08:41] Speaker 04:
That was solely an invention of the government mid-performance.

[00:08:45] Speaker 00:
They created a framework for... You don't think the contract didn't allow the government to have any say in the pricing of the product?

[00:08:54] Speaker 04:
The contract says that the government is able to determine what may be fair and reasonable.

[00:09:00] Speaker 04:
And I suggest that fair and reasonable cuts in both ways, Judge.

[00:09:06] Speaker 04:
MPG West, the contractor, came into this contract believing, because that's what the contract said, that it could charge its fixed prices so long as it made the page statement.

[00:09:15] Speaker 00:
You're saying it should have been fair and reasonable to your client.

[00:09:21] Speaker 04:
To MPG West, yes.

[00:09:23] Speaker 04:
But I agree that the contract does state that the government is able to

[00:09:28] Speaker 03:
But your review prices for fare came into the contract believing that it was going to be able to locally source.

[00:09:35] Speaker 03:
That is to say, it was going to be able to meet the expectation and the hope of the government, which was the reason why the government felt it was fair to get rid of the transportation subsidy.

[00:09:47] Speaker 03:
So your client is negotiating and saying, boy, I'm telling you, with no transportation facility, if I have to transport all this stuff in the United States, including stuff like salad, which I might have to air transport.

[00:10:00] Speaker 03:
And it's going to be a tough sell, because everybody knows that the price that the government's going to pay is to try to pass on to the patron.

[00:10:08] Speaker 04:
And, Your Honor, I would submit that, for the most part, MBG West was successful in delivering produce that was at a fair, reasonable price.

[00:10:17] Speaker 03:
Well, $10 million short, right?

[00:10:20] Speaker 04:
That's right.

[00:10:21] Speaker 03:
But what was the total volume on sale over the period that they were in the contract?

[00:10:26] Speaker 04:
Total volume of sale while they're in the contract.

[00:10:28] Speaker 04:
Judge, I'm not sure that that specific fact is in the record, Judge.

[00:10:33] Speaker 02:
So we don't even know whether you sold the estimated requirements numbers or not.

[00:10:40] Speaker 04:
Well, there's no question, Judge, that they were able to meet the requirements.

[00:10:44] Speaker 02:
No, but there's a schedule in the contract that says weakly estimated requirements.

[00:10:50] Speaker 02:
You're not contending that you weren't able to sell that quantity under the contract, right?

[00:10:56] Speaker 04:
Your Honor, I don't think there was any question that they were inadequately sourcing, I suppose.

[00:11:03] Speaker 04:
They weren't necessarily being criticized for the volume that they were able to provide to the government.

[00:11:11] Speaker 04:
The question, again, is what the government decided to buy at the prices that they would buy at.

[00:11:15] Speaker 02:
It's the pricing, not the quantity.

[00:11:17] Speaker 02:
Correct.

[00:11:18] Speaker 00:
Can you tell me what the evidence in the record is?

[00:11:20] Speaker 00:
I mean, you had said earlier that you agreed that MPG could have sourced some of the products locally.

[00:11:28] Speaker 00:
What evidence is there on whether that could have been that?

[00:11:33] Speaker 04:
Your Honor, this was an issue that came up, especially on MBG West's motion for reconsideration.

[00:11:40] Speaker 00:
It's something that the board emphasized.

[00:11:42] Speaker 00:
The board emphasized on two of the issues that you raised, that MPG could have

[00:11:48] Speaker 00:
and said it was going to source things locally, and then ultimately it never did.

[00:11:52] Speaker 00:
And that's where it ran into problems.

[00:11:55] Speaker 00:
So one of the things I was thinking about was, could it have sourced locally?

[00:12:00] Speaker 00:
And so I'm looking for evidence on that.

[00:12:02] Speaker 00:
But it sounds like you could see that some things could have been.

[00:12:07] Speaker 04:
And they did, Judge.

[00:12:08] Speaker 04:
I mean, MBG was able to source some locally.

[00:12:12] Speaker 04:
I can't say.

[00:12:13] Speaker 04:
And of course, it certainly wasn't the case that they source everything locally.

[00:12:16] Speaker 04:
Otherwise, we wouldn't have the issues that we did.

[00:12:18] Speaker 04:
And then there were certain items, such as the bagged salad, that it was not possible to source fresh express salad locally, because it is Americano.

[00:12:27] Speaker 00:
But it was possible to provide bagged salad locally, just not fresh express.

[00:12:33] Speaker 04:
If there was going to be a modification in the contract, that was accepted.

[00:12:36] Speaker 04:
And there was a whole process for approving items.

[00:12:38] Speaker 04:
So when the contract started, of course,

[00:12:41] Speaker 04:
both parties understood that the bagged salad requirement was going to be fresh express only.

[00:12:46] Speaker 04:
And while MBGUS did try to potentially find a local source of bagged salad and get that approved, they ultimately couldn't get that.

[00:12:54] Speaker 02:
So with respect to bagged salad, your argument is that the price rejection of the bagged salad was unreasonable because the contract required that it come from the United States, I guess from Mexico ultimately.

[00:13:08] Speaker 02:
And that what the government was doing is saying prices are unreasonable, even though the prices just allowed cost recovery and some profit.

[00:13:18] Speaker 02:
Yeah, that's exactly right, Judge.

[00:13:20] Speaker 03:
Was the government requiring, was the government barring local sourcing of bagged salad?

[00:13:27] Speaker 04:
Well, the government required that the bagged salad requirement was fresh express only.

[00:13:32] Speaker 03:
I understand.

[00:13:33] Speaker 03:
It could be locally sourced.

[00:13:36] Speaker 03:
You tried the locally sourced bagged salad, so it was permissible under the contract to locally source bagged salad.

[00:13:46] Speaker 04:
The NPTUS had to source Fresh Express only because that's what the contract required.

[00:13:51] Speaker 03:
Well, that's what you asked for.

[00:13:53] Speaker 04:
Yes, that was part of the list of approved sources.

[00:13:56] Speaker 04:
There was a list.

[00:13:57] Speaker 04:
But that's what the contract required.

[00:13:59] Speaker 04:
And then that's what the contract required.

[00:14:01] Speaker 03:
And could that source have gone locally?

[00:14:04] Speaker 03:
Could they have subbed to a local market?

[00:14:07] Speaker 04:
If DECA were to approve a local source by selling?

[00:14:10] Speaker 03:
Yes, so there was bag salad available locally.

[00:14:15] Speaker 03:
And your contractor could have accessed that if it had found a source that would have been approved.

[00:14:23] Speaker 03:
And the record shows that for at least a year, your successors were successful.

[00:14:28] Speaker 03:
We don't know whether they were getting it local or not, do we?

[00:14:32] Speaker 03:
Well, Your Honor, I think what the record will show is that after the- My point is I think the argument that the contract required your client to import the bag of salad is not correct.

[00:14:49] Speaker 03:
Your client could have gone to a local source

[00:14:53] Speaker 03:
and bought it and supplied the kind and avoided the transportation cost.

[00:14:59] Speaker 03:
Only if that was approved, only if they would have... Well, no, but I mean, the fact that it wasn't approved, the person you chose didn't have a good manufacturing facility doesn't mean that others couldn't have done it.

[00:15:10] Speaker 02:
But what you're saying is the contract as written didn't allow that, right?

[00:15:13] Speaker 04:
That's correct, Your Honor.

[00:15:15] Speaker 04:
The contract specifically specified that Fresh Express was the only backstop.

[00:15:19] Speaker 03:
But it didn't prohibit express from subbing to somebody locally.

[00:15:24] Speaker 04:
If they were able to go through the process.

[00:15:25] Speaker 03:
Yes, if they were able to find the right person.

[00:15:28] Speaker 04:
And Your Honor, to add some context to this, after the Department of Defense offices of the Inspector General came in and ran their investigation, their audits.

[00:15:35] Speaker 03:
We know what happened in the end.

[00:15:38] Speaker 03:
The decade decided ultimately.

[00:15:40] Speaker 03:
Can I ask a question about the record?

[00:15:42] Speaker 03:
You say in your page 20 that there were no estimates for a bagged salad.

[00:15:50] Speaker 03:
And I want to ask about page 118.

[00:15:52] Speaker 03:
Can you look in the white page 118?

[00:16:06] Speaker 03:
118.

[00:16:11] Speaker 04:
This is the appendix page.

[00:16:12] Speaker 03:
Yeah, page 118 of the JA appendix, APPX 118.

[00:16:18] Speaker 03:
It'll be in the white volume.

[00:16:20] Speaker 05:
I'm sorry.

[00:16:21] Speaker 03:
In volume one.

[00:16:24] Speaker 03:
It's in the records, sir.

[00:16:28] Speaker 03:
Do you have the second volume?

[00:16:30] Speaker 04:
I have the second volume, Judge.

[00:16:31] Speaker 03:
Yeah, in the second volume.

[00:16:32] Speaker 03:
You'll have the first volume?

[00:16:35] Speaker 03:
Yeah.

[00:16:37] Speaker 03:
It's in the first volume.

[00:16:38] Speaker 03:
I'm just trying to ask whether or not this particular document, which shows estimated weekly amounts for bagged salad,

[00:16:48] Speaker 03:
I'm questioning your statement in your brief that there were no estimates for bagged salad.

[00:16:52] Speaker 03:
OK.

[00:16:53] Speaker 03:
And I'm asking you to look at volume one of two of the joint appendix you filed.

[00:17:02] Speaker 04:
Your Honor, unfortunately, I don't have volume one up here.

[00:17:05] Speaker 04:
I'm sorry.

[00:17:05] Speaker 04:
I do have it back at the desk.

[00:17:08] Speaker 00:
I'm going to show you one.

[00:17:09] Speaker 00:
We're going to grab it.

[00:17:10] Speaker 00:
You have a graded counsel's table?

[00:17:16] Speaker 00:
It's page A118.

[00:17:22] Speaker 03:
Of course, it just looked to me like it's estimates on Bag South.

[00:17:26] Speaker 00:
Yes, it does.

[00:17:40] Speaker 00:
Just a note, just so you know, our rules do require that Council bring the appendices and other briefing materials to have them readily accessible.

[00:18:05] Speaker 02:
Give that to counsel, would you, please?

[00:18:10] Speaker 02:
Oh, thank you.

[00:18:11] Speaker 03:
Yeah, sure.

[00:18:28] Speaker 04:
And your question, Judge?

[00:18:29] Speaker 03:
Yeah, it looked to me like that was an estimate that was in the solicitation

[00:18:34] Speaker 03:
for estimate of bagged salad needs.

[00:18:37] Speaker 03:
It's very similar to what we have otherwise on the record for the estimates.

[00:18:45] Speaker 04:
Your Honor, I think I'd agree that these are estimates for the various types of bagged salads.

[00:18:50] Speaker 03:
Well, in your blue brief, you had asserted that there were no such estimates.

[00:19:05] Speaker 03:
Page 16 of your blue brief.

[00:19:10] Speaker 03:
Solicitation didn't provide estimates in any encore or for bagged salad products.

[00:19:54] Speaker 02:
Ms.

[00:19:54] Speaker 02:
Gettys?

[00:20:05] Speaker 01:
Good morning, Your Honors.

[00:20:06] Speaker 01:
May it please the Court?

[00:20:07] Speaker 01:
This is a highly fact-intensive case where the Court need not go... Okay, so let's talk for a moment about bagged salad.

[00:20:14] Speaker 02:
Yes.

[00:20:15] Speaker 02:
They say that the contract required them to ship the bagged salad from the United States.

[00:20:20] Speaker 02:
Do you agree with that?

[00:20:22] Speaker 01:
Because the contractor incorporated their preferred vendor in the United States, I think it's fair to say that the contract did require that.

[00:20:31] Speaker 01:
But that was because after reading through the solicitation requirements and proposing to provide bagged salads on site at the commissaries at a reasonable price,

[00:20:42] Speaker 01:
They chose that particular vendor, and that's why it was incorporated into the contract.

[00:20:47] Speaker 02:
So if that's true, then it seems to me that the price that the government found to be unreasonable, assuming that their allegation is correct, that that was cost plus profit, rejecting that as an unreasonable price seems problematic.

[00:21:04] Speaker 02:
Just on the bagged salad, that's all I'm talking about right now.

[00:21:07] Speaker 01:
Well, a reasonable price doesn't mean whatever is necessary to reimburse their costs.

[00:21:12] Speaker 01:
This was not a cost reimbursement contract.

[00:21:15] Speaker 01:
It was a fixed price contract.

[00:21:17] Speaker 01:
A reasonable price would generally mean a price that a consumer might look at and think that's a reasonable price to pay for this product.

[00:21:25] Speaker 01:
The business choices made by MTG West could cause those prices to go as high as you can imagine.

[00:21:32] Speaker 01:
And it wouldn't be reasonable just because it's necessary

[00:21:35] Speaker 01:
to cover their costs.

[00:21:36] Speaker 01:
It's standard in a fixed price contract that the contractor is responsible for keeping its costs low in order to make a profit off the contract based on the proposal that it made.

[00:21:49] Speaker 01:
In this case, it knew what the prices of bagged salads had been in the past.

[00:21:53] Speaker 01:
I'm sure it had some idea of the market conditions and what bagged salad was being sold for locally.

[00:22:00] Speaker 01:
select a provider in the United States knowing that the government was not going to subsidize those transportation costs, incorporate those costs in the price, have a price that's two or three times higher than what people had been paying in the past, and call that reasonable just because it's necessary to cover its costs.

[00:22:16] Speaker 02:
Okay, but my difficulty is the government's rejecting these prices as unreasonable.

[00:22:22] Speaker 02:
But let's assume, hypothetically, and I know this hasn't been litigated, that there's no way that they could have performed the contract as written, that is, to bring the bag of salad from the United States at the prices that the government demanded.

[00:22:38] Speaker 02:
Why wouldn't that be unreasonable determination by the government as to the price?

[00:22:47] Speaker 01:
Well, if the contract made it impossible for the contractor to perform in a way that was profitable, that's an issue they should have raised at the time of a solicitation.

[00:22:56] Speaker 01:
What they're bringing here is a deficient specifications claim.

[00:23:01] Speaker 01:
And as the board noted, their argument is really more along the lines.

[00:23:04] Speaker 02:
That may be one of the claims, but the claim I'm talking about is the government's rejecting a bagged salad because it's priced too high.

[00:23:13] Speaker 02:
They're saying this is not

[00:23:14] Speaker 02:
This is an unreasonable price.

[00:23:16] Speaker 02:
And what I'm saying is if the government's action in that respect was unreasonable in the sense that nobody could have performed the contract at the prices that the government wanted, why doesn't that create liability?

[00:23:29] Speaker 01:
Because the contract specifically states that the government will monitor for fair and reasonable prices.

[00:23:35] Speaker 01:
And MPG had alternatives available to it.

[00:23:37] Speaker 01:
As soon as MPG said,

[00:23:39] Speaker 01:
that it was having difficulty with the bagged salad requirement, and it would like that requirement to be dropped from the contract, DECA was willing to do so.

[00:23:47] Speaker 01:
It could have raised that issue earlier.

[00:23:48] Speaker 01:
It could have raised that issue at the point of the solicitation.

[00:23:51] Speaker 03:
Was that because it was an embargoed item?

[00:23:55] Speaker 03:
I'm sorry?

[00:23:56] Speaker 03:
Didn't the contract say with regard to embargoed items, if they had difficulty satisfying that, they go to the government?

[00:24:05] Speaker 03:
Yes, precisely.

[00:24:07] Speaker 01:
Yes, the solicitation in the contract made clear that the overall scheme was the contractor would source as much as possible locally.

[00:24:15] Speaker 01:
It could potentially bring embargoed items in through the status of forces agreement, but rather than do that, the contract provided that it could inform DECA of any.

[00:24:25] Speaker 01:
It actually said that the contractor shall provide a list of embargoed items, and MPG never did that.

[00:24:32] Speaker 02:
Well, I'm sorry.

[00:24:33] Speaker 02:
What does that have to do with bank sale?

[00:24:35] Speaker 01:
Because if it was impossible for the contractor to source an item locally, the contract suggested that it go to DECA to think about whether it would reallocate the items being asked for.

[00:24:49] Speaker 02:
The idea wasn't to force the contractor to get a... Okay, but I'm not understanding what's going on here because the contract said that bagged salad couldn't be sourced locally, that it had to be brought from the United States.

[00:25:03] Speaker 02:
unlike all the other items in the contract.

[00:25:06] Speaker 01:
The contractor specified a vendor because that was what they had proposed.

[00:25:13] Speaker 01:
Right.

[00:25:13] Speaker 01:
It was their choice to propose to use a vendor that could not result in unreasonable prices.

[00:25:19] Speaker 01:
The fact that DECA took it at its word that it could source from that provider and then provide the salads at reasonable prices shouldn't then fall on DECA when it was actually making an unreasonable choice to import from the United States an item that might be

[00:25:32] Speaker 01:
gotten more cheap locally and expect patrons to pay.

[00:25:36] Speaker 02:
And that's what the contract required.

[00:25:38] Speaker 01:
It is what the contract required.

[00:25:39] Speaker 01:
And as the board explained, the fact that the contract, that portion of the contract couldn't be completed profitably is not a deficient specification.

[00:25:48] Speaker 03:
Do the contracts provide that the subcontractor that they picked had to ship from the United States or just that they had to use him

[00:25:58] Speaker 01:
It didn't specify that they had to ship from the United States, but it specified the United States company.

[00:26:07] Speaker 03:
The nature of the relationship, I mean, I was of the view, and I think your adversary agreed, that Express could have subcontracted with a local provider.

[00:26:18] Speaker 01:
Yes, I don't think anything in the contract would have prevented that.

[00:26:21] Speaker 03:
The contract simply said that they would source from... So that the bag salad didn't actually have to come from the United States.

[00:26:27] Speaker 01:
No, they just had to do it through Fresh Express.

[00:26:29] Speaker 02:
You told me earlier it did have to come from the United States.

[00:26:33] Speaker 02:
You told me earlier it had to come from the United States.

[00:26:35] Speaker 02:
That was the contract requirement.

[00:26:37] Speaker 01:
No, the contract required it to come through Fresh Express.

[00:26:39] Speaker 01:
I'm sorry if I misspoke.

[00:26:41] Speaker 01:
Fresh Express is a United States company, and MPGUS is saying that that made it impossible for it to source elsewhere.

[00:26:47] Speaker 01:
But nothing in the contract prevents it from doing so.

[00:26:50] Speaker 01:
And the specification of using Fresh Express in the first place, that was MPG's business choice.

[00:26:55] Speaker 01:
And to the extent that the contract did require them to ship, if there was no other way to follow the contract requirements other than shipping from the United States, then that would have been a patent defect at the time of the contract, which means they can't now prevail on a defective specifications claim.

[00:27:11] Speaker 02:
Yeah, but that's not the theory.

[00:27:12] Speaker 02:
The theory is that the government rejected these bagged salads as being unreasonably priced when they had to be priced that way to comply with the contract.

[00:27:22] Speaker 02:
That's the theory.

[00:27:24] Speaker 03:
Right, but... Is it your concession that they had to be priced that way or that was their choice?

[00:27:30] Speaker 03:
If they had alternatives, they went to a local bagged salad supplier and tried to get him approved.

[00:27:37] Speaker 03:
They couldn't get him approved because he had something wrong with his facility.

[00:27:41] Speaker 03:
Certainly suggested that the government was willing to accept locally sourced bagged salad.

[00:27:47] Speaker 01:
Yes, precisely.

[00:27:48] Speaker 01:
So ideally, they would have sourced locally, even once they had selected Fresh Express as their provider.

[00:27:54] Speaker 02:
Was this issue addressed at all before the board, whether they had to ship the salad from the United States, the bagged salad?

[00:28:04] Speaker 01:
Not especially, I don't believe.

[00:28:08] Speaker 01:
Well, the board definitely considered whether MPG had made any attempts to source

[00:28:15] Speaker 01:
any alternative attempts, because that would be necessary for a showing of commercial impracticability.

[00:28:21] Speaker 01:
And the board found that NPG had provided no evidence of seeking out any alternatives.

[00:28:26] Speaker 03:
But the history of all of the discussions with potential local suppliers of baglettes is in the record.

[00:28:32] Speaker 01:
Yes.

[00:28:33] Speaker 03:
There's an abundant discussion of that possibility.

[00:28:37] Speaker 02:
Let's assume for the moment, put aside this potential factual dispute.

[00:28:42] Speaker 02:
Let's assume that the contract required them to ship from the United States.

[00:28:45] Speaker 02:
Okay, let's just assume that.

[00:28:48] Speaker 02:
Why isn't the government's refusal to accept that product at the cost that was necessary to make that feasible a violation of the contract?

[00:29:02] Speaker 01:
Well, MPG is arguing that it was a violation of the duty of good faith, but the contract provided that the government... No, it's just a question.

[00:29:10] Speaker 02:
It's not an unreasonable price.

[00:29:11] Speaker 02:
The government says it's an unreasonable price.

[00:29:14] Speaker 02:
It is an unreasonable price because that's the price you'd have to charge to do it.

[00:29:19] Speaker 01:
Well, respectfully, Your Honor, that isn't the only question for whether something is reasonable.

[00:29:23] Speaker 01:
A reasonable price can also mean what a consumer is reasonably expected to pay.

[00:29:28] Speaker 01:
If that were true, if the government had to pay whatever was necessary to reimburse their costs, that would result in it buying a bunch of produce that it knows is never going to sell at the established prices that are all going to go to waste.

[00:29:41] Speaker 01:
The alternative would be for MPG to follow the contractual provision of telling DECA that there were certain products that were unavailable locally so that they could then consider reallocating the product assortment,

[00:29:53] Speaker 01:
or making a change, which is exactly what they did as soon as MPG West brought this issue to their attention.

[00:29:57] Speaker 03:
Didn't the record show that the contractor did not reduce its profit margins?

[00:30:04] Speaker 03:
Right, another option.

[00:30:06] Speaker 03:
In terms of whether they could cover their costs, the presiding judge's question, if they're unwilling to reduce their profit margin, we don't know whether they were unable to make their costs, right?

[00:30:18] Speaker 01:
Yes.

[00:30:18] Speaker 01:
There were a series of business decisions went into this, often

[00:30:21] Speaker 01:
Yes, contractors will do exactly that.

[00:30:23] Speaker 03:
If they have higher costs on one item than another, they might... I thought the board made an expressive fact-finding that throughout the MPG was unwilling to reduce its profit margin.

[00:30:34] Speaker 00:
Yes, the board did make that finding.

[00:30:37] Speaker 00:
In other words, like the bagged salad could be a loss leader.

[00:30:40] Speaker 01:
Yes, exactly.

[00:30:41] Speaker 01:
And MPG chose not to do that.

[00:30:43] Speaker 01:
And it's not as though MPG sourced everything else locally and just imported these bagged salads.

[00:30:49] Speaker 01:
It was importing these bagged salads

[00:30:50] Speaker 01:
in the same manner that it was importing most of its fresh fruits and vegetables to the United States.

[00:30:55] Speaker 01:
So this idea that a defective specification in the contract forced it to do, though, doesn't really withstand scrutiny because it was just a choice.

[00:31:04] Speaker 02:
We keep talking about defective specifications.

[00:31:05] Speaker 02:
That may be one theory, and that may be a bad theory.

[00:31:09] Speaker 02:
But my understanding is they have an alternative theory, is the government's rejection of the bagged salad as being unreasonably priced

[00:31:17] Speaker 02:
was not in compliance with the contract because the contract required them to incur these costs to ship it from the United States, and that rejecting it as being too expensive under those circumstances when they were doing exactly what the contract required, according to them, is not something that the government could properly do.

[00:31:38] Speaker 02:
That's the theory.

[00:31:40] Speaker 03:
Yes, I understand that theory, but it essentially... Well, the first question is, was that theory presented to the board and adjudicated?

[00:31:46] Speaker 03:
I didn't see any sign that the board was presented with that specific theory because we don't have a finding from the board that the contract required the goods to come from the United States as opposed to coming from a United States company.

[00:32:02] Speaker 03:
And the record is a plethora of evidence of the contractor and trying to find a local source.

[00:32:09] Speaker 03:
to satisfy the terms of the contract.

[00:32:13] Speaker 03:
If it's true that the contract required this stuff to come to the United States, then when he supplied the goods from a local source, he would be in breach of the contract under the theory that's being discussed.

[00:32:32] Speaker 01:
Part of the issue here is that MPG-West did make two arguments before the board.

[00:32:37] Speaker 01:
The argument specific to bagged salads was a defective specifications requirement.

[00:32:42] Speaker 01:
It also made an argument that the government was not acting in good faith by manipulating its requirements over the life of the contract.

[00:32:51] Speaker 01:
But that wasn't a specific argument to the bagged salad.

[00:32:54] Speaker 01:
And that argument doesn't hold up, because the government was not changing its requirements.

[00:32:59] Speaker 01:
saying that actually it didn't need this or needed more of that.

[00:33:02] Speaker 01:
It was simply saying, the contract allows us to reject unreasonable prices, and that's what we're going to do.

[00:33:08] Speaker 02:
OK, but I thought one of their theories was that the government couldn't properly reject these items as being unreasonable, unreasonably priced.

[00:33:19] Speaker 01:
Yes, and that assumes that the government was essentially obligated to compensate MPG's costs, regardless of what those costs were or whether there were alternatives.

[00:33:29] Speaker 01:
And in this case, the board found that it was MPG's business decisions, not the government's treatment of MPG that led... So they did argue that the government improperly rejected the bagged salad as being unreasonably priced.

[00:33:43] Speaker 01:
Well, it argued that the government improperly rejected various prices as being unreasonably priced.

[00:33:48] Speaker 01:
That argument wasn't focused particularly on the bagged salads.

[00:33:52] Speaker 02:
So it included the bagged salads?

[00:33:54] Speaker 01:
Yes, it did.

[00:33:55] Speaker 00:
Can I ask you another question?

[00:33:56] Speaker 00:
You mentioned earlier it's a very fact-specific

[00:33:59] Speaker 00:
I mean, it's a very fact-specific case, so I've got two specific questions for you.

[00:34:04] Speaker 00:
One is, you said earlier that once MPG came to DECA and said this bagged salad requirement is a problem, that DECA removed that requirement.

[00:34:18] Speaker 00:
There is some suggestion in the record, perhaps, that actually maybe the bagged salad requirement was complained about in 2015 and it wasn't removed until 2017.

[00:34:27] Speaker 00:
What I want to know is where is your evidence, where in the record am I to understand what you say to be the facts?

[00:35:02] Speaker 01:
I mean, it looks like there are pieces of testimony from different witnesses as to what exactly happened with the bagged salad.

[00:35:10] Speaker 00:
I mean, you said a very specific statement.

[00:35:14] Speaker 00:
So what evidence do you rely on for the specific statement that once MPG complained about it, DECA removed it?

[00:35:25] Speaker 01:
What I have in front of me is the findings by the board based on the testimony of Director Joseph Dew primarily, but I'm not sure of the exact dates of when MPG first complained about the bagged salad requirement as opposed to when it was removed.

[00:35:39] Speaker 00:
Do you want to give me the site that you're relying on for the board's findings?

[00:35:45] Speaker 01:
Sure, at Appendix 16.

[00:35:46] Speaker 00:
Is there a particular paragraph?

[00:35:54] Speaker 01:
Yes.

[00:35:55] Speaker 01:
At 1-17 and 1-18, the board found first that MPG West approached DECA and asked if DECA could take over the bagged salad program, and then that DECA Director Joseph Ju testified that DECA agreed to remove bagged salads from the contract and reinstate second destination transportation.

[00:36:12] Speaker 01:
My understanding was that was in response to MPG West's request, and there wasn't some delay of over a year, for instance.

[00:36:20] Speaker 01:
But I don't have those dates at my fingertips,

[00:36:22] Speaker 01:
should be able to find them in the testimony, if you'd like.

[00:36:26] Speaker 00:
If you think it's supported by that testimony that's on paragraph 117 and 118, then I can probably find it, so long as it's in the appendix.

[00:36:35] Speaker 00:
Let me ask you something else.

[00:36:36] Speaker 00:
The other thing is, do you think the board expressly found whether or not certain or all or some

[00:36:45] Speaker 00:
of the products requested, the fresh fruits and vegetables, could have been locally sourced?

[00:36:50] Speaker 00:
I mean, there's definitely a finding by the board that MPG created its own problem by not providing local produce, right?

[00:36:58] Speaker 00:
But what evidence is there in the record that MPG could have purchased items locally?

[00:37:03] Speaker 01:
The problem with the record is that MPG didn't really make that effort.

[00:37:06] Speaker 01:
MPG, after the contract performance began, even though it acknowledged that it was having trouble with the startup period,

[00:37:13] Speaker 01:
It expressed optimism.

[00:37:15] Speaker 01:
It said it had a local sourcing plan and that it would be able to source more than 90 out of a list of 100 items that it provided locally.

[00:37:23] Speaker 01:
It had a phase-in process, a timeline that it worked out, but then it never followed through on that plan.

[00:37:31] Speaker 01:
And the lack of evidence in the record just goes to undermine MPG West.

[00:37:36] Speaker 00:
What about the Inspector General report?

[00:37:38] Speaker 00:
Does that suggest that things could not have been provided locally?

[00:37:42] Speaker 01:
The inspector's general's report, which of course the board fully considered and ultimately didn't find persuasive on any of these claims, at most it suggests that DECA could have been more thorough upfront about ensuring that they were locally sourced produce.

[00:37:57] Speaker 01:
It certainly doesn't do anything to show affirmatively that that produce was not available locally.

[00:38:02] Speaker 01:
Largely what the report, and I'm mostly talking about the market research report,

[00:38:08] Speaker 01:
Mostly what it did is it looked at the prices before and after and found that the prices had gone up and assumed that that was a result in the change of contract.

[00:38:16] Speaker 01:
But of course, it could equally well be true that it was a result of the choices made by contractors to continue importing when that wasn't necessary.

[00:38:25] Speaker 02:
So what does the record show about the ability to source the bag of salad locally?

[00:38:31] Speaker 01:
Well, the record shows that once it was novated to the subcontractors, they were able to perform successfully.

[00:38:38] Speaker 03:
And it shows that... What about in the time period before novation?

[00:38:43] Speaker 03:
It shows that... About almost a year in one case?

[00:38:47] Speaker 01:
Yes, basically what it shows is that MPG West believed it could source locally.

[00:38:51] Speaker 02:
No, no, we're talking about bagged salad, not other stuff.

[00:38:55] Speaker 01:
The record doesn't affirmatively show that bagged salad was available locally.

[00:38:59] Speaker 01:
It just shows that MPG West did not make an effort to find alternatives to what it considered to be.

[00:39:04] Speaker 03:
It identified a specific company that they said could supply the goods and they took it to the K-109.

[00:39:12] Speaker 03:
people, right?

[00:39:13] Speaker 03:
Yes.

[00:39:13] Speaker 03:
So that suggests that there was an identified possible local source that was proposed to the safety people, and the safety people rejected that particular source, right?

[00:39:29] Speaker 03:
Yes.

[00:39:30] Speaker 03:
That's the name of the company was Anasong.

[00:39:36] Speaker 01:
Yes, and to be fair, I don't think the record is clear that there's a specific alternative provider who would have been approved.

[00:39:45] Speaker 01:
The issue is that MPG West didn't seem to make those efforts.

[00:39:49] Speaker 01:
And yes, the bagged salad requirement is arguably posed an additional difficulty because Fresh Express was specifically identified in the contract.

[00:39:59] Speaker 01:
But MPG West didn't even bother to follow through on that local sourcing plan for the other fresh fruits and vegetables.

[00:40:05] Speaker 03:
Why was our country embargoed on a particular product?

[00:40:12] Speaker 03:
Bagged salad was embargoed in Japan and Korea, or at least Korea, I believe.

[00:40:15] Speaker 03:
Can they make a point of that?

[00:40:18] Speaker 03:
Perhaps in protecting their local industry?

[00:40:21] Speaker 01:
Perhaps.

[00:40:22] Speaker 01:
I'm not sure what the motivation behind the embargoes in this case was.

[00:40:27] Speaker 03:
But there's certainly no evidence in the record that bag solid was unavailable in the local market?

[00:40:34] Speaker 01:
No, there's no evidence that it was unavailable in the local market and the burden was on MPG West to seek out those alternatives rather than to simply incur high costs resulting in prices that were... The contract required them to buy it from a specific supplier located in the United States.

[00:40:53] Speaker 02:
Yes, a supplier...

[00:40:56] Speaker 02:
You're saying that they had an obligation to go to their supplier and suggest that that supplier buy its bagged salads someplace else.

[00:41:05] Speaker 01:
Or they could have selected a supplier that could have provide salads at a reasonable price.

[00:41:09] Speaker 02:
The contract required a particular supplier, not just any supplier.

[00:41:14] Speaker 01:
Right, because they had chosen that supplier.

[00:41:17] Speaker 02:
Nonetheless, the government agreed to that.

[00:41:19] Speaker 02:
That's what the contract said.

[00:41:20] Speaker 01:
Yes, and the contract said that they would then provide those salads at a reasonable price, and that's the issue.

[00:41:25] Speaker 01:
They couldn't do so, and they're asking the government to incur those costs rather than having chosen a supplier that could have enabled them to carry out their requirements successfully.

[00:41:35] Speaker 03:
Do you know whether on the list from which they selected express there were local suppliers on that list?

[00:41:43] Speaker 01:
I do not.

[00:41:43] Speaker 03:
I tried to find the list, and I couldn't find it as of the effective date.

[00:41:48] Speaker 01:
I'm not aware that the list included any local suppliers.

[00:41:51] Speaker 03:
The current list do include local buyers.

[00:41:54] Speaker 03:
I just didn't know what the old ones did.

[00:41:57] Speaker 01:
I'm not sure what other options were on the list.

[00:42:00] Speaker 01:
MPG West selected this provider from the United States.

[00:42:03] Speaker 01:
But MPG West always knew that the contract required it to ultimately propose reasonable prices.

[00:42:10] Speaker 01:
And that's the issue here.

[00:42:11] Speaker 01:
They thought that doubling or tripling the price of bagged salad was reasonable.

[00:42:15] Speaker 01:
so long as it reflected their costs, but their cost was the result of their own business choices, including their choice of a provider.

[00:42:22] Speaker 02:
Okay, I think we're out of time.

[00:42:26] Speaker 02:
Thank you.

[00:42:27] Speaker 02:
Mr. Haraguchi, you have two minutes.

[00:42:36] Speaker 04:
May it please the Court, Your Honor, I just want to address a couple of issues that you spoke to counsel with.

[00:42:42] Speaker 04:
There seems to be a lot of discussion about the bagged salad and whether that bagged salad could have been procured, I suppose, locally in Korea and Japan.

[00:42:51] Speaker 04:
There isn't anything in the record that suggests that that was even a possibility.

[00:42:54] Speaker 04:
What we do know is that they were required to source that.

[00:42:57] Speaker 03:
If you went to Anisong and had them take some bagged salad down to the testing people and they rejected it, it certainly suggests that there was some evidence in the record that it was available.

[00:43:12] Speaker 04:
Judge, I agree that if they were able to find a different bagged salad, that would be able to pass through the food process.

[00:43:20] Speaker 03:
The question was, is it available?

[00:43:21] Speaker 03:
That's the first question.

[00:43:23] Speaker 03:
Second question is whether or not you find it and you can get it passed by the certified people.

[00:43:28] Speaker 04:
Yes, I think that's correct, Judge.

[00:43:30] Speaker 03:
So you do not deny that it was available in the marketplace.

[00:43:36] Speaker 04:
Judge, I'm not sure I entirely understand the question.

[00:43:40] Speaker 04:
Whether it was possible for MPG West to find fresh express back salad locally in Korea and Japan and then source them as opposed to shipping them from the United States, I'm not sure that it was possible.

[00:43:53] Speaker 04:
There's nothing in the record to suggest that it was.

[00:43:56] Speaker 03:
And there was a record that you tried and failed because your supplier was rejected.

[00:44:04] Speaker 04:
The Korean back salad.

[00:44:06] Speaker 03:
Amazon was rejected.

[00:44:07] Speaker 04:
Right, the non-fresh express.

[00:44:10] Speaker 04:
company.

[00:44:12] Speaker 04:
I do want to address the pricing of the bag of salads though, because there's a lot of question of what does a fixed price mean and how Deco was deciding the prices to buy.

[00:44:24] Speaker 03:
One thing that we haven't really spoken too much about is the... You had a profit margin in your price, right?

[00:44:30] Speaker 04:
And how DECO was basically dictating the prices based on political pressure.

[00:44:34] Speaker 03:
Right.

[00:44:35] Speaker 03:
But your price was a profit margin that you never lowered once you realized that your costs were higher.

[00:44:42] Speaker 04:
Yes, Judge.

[00:44:42] Speaker 04:
And NPGOS, of course, was required to include all those costs into its fixed prices.

[00:44:47] Speaker 02:
Well, your argument was you can't even recover your costs at the prices the government set.

[00:44:51] Speaker 04:
That's correct, Judge.

[00:44:53] Speaker 04:
And DECO was not even basing its prices.

[00:44:56] Speaker 04:
When we talk about a reasonable price, those prices

[00:45:00] Speaker 04:
And I think Deca would concede some testimony here from the deputy director of acquisition manager, Richard Dieter.

[00:45:07] Speaker 04:
He acknowledges that the prices may be competitive with chainsaw averages lower than the commercial market.

[00:45:13] Speaker 04:
But his problem was he was getting a lot of pressure from the press, from military times, from bloggers, from Facebook.

[00:45:19] Speaker 04:
And it was those influences that dictated the decision for Deca to artificially lower prices and basically force MBG to sell.

[00:45:28] Speaker 00:
What, per se, is wrong with that?

[00:45:30] Speaker 00:
I'm just wondering, because I would assume that's the consumers that are generating that, and saying, boy, this is just too much money for a family in the military to be able to afford these products.

[00:45:43] Speaker 04:
Your Honor, I fully sympathize with the patrons and how their expectation was a different amount.

[00:45:48] Speaker 00:
I'm just having a hard time understanding why it matters if it was political or if it was because of what a reasonable amount would be for consumers.

[00:45:56] Speaker 00:
I'm having a hard time with that.

[00:45:57] Speaker 00:
I understand the rest of your argument.

[00:45:59] Speaker 04:
Well, because if those prices were competitive with the commercial market, or even lower than what was available.

[00:46:06] Speaker 00:
Is there any evidence that it was competitive with the market of what was available in the countries where they were located?

[00:46:12] Speaker 04:
Judge, I'm looking at, in our opening brief, page 55, it's a reference to appendix pages 453, 454.

[00:46:19] Speaker 04:
This is testimony of Mr. Richard Dieter, who was the Deputy Director of Acquisition Management.

[00:46:28] Speaker 04:
He suggests that the prices may be competitive with chainsore averages, lower than the commercial market.

[00:46:33] Speaker 04:
But it was the bad press, the attention that DECA was getting, that drove their pricing decisions.

[00:46:43] Speaker 00:
So what about the requirement or goal of having prices be 20% to 30% lower for those who are on base?

[00:46:55] Speaker 04:
So you're referring to the patron savings requirement?

[00:46:58] Speaker 04:
In South Korea, that was 34%.

[00:47:00] Speaker 04:
In Japan, it was 30%.

[00:47:02] Speaker 04:
That refers to 35, what they call, high volume core items.

[00:47:08] Speaker 00:
The bagged salad didn't fall on that list.

[00:47:10] Speaker 00:
Is that what you're going to tell me?

[00:47:11] Speaker 04:
Well, what the board found is that that was never an issue with MBG.

[00:47:16] Speaker 04:
I mean, MBG was making the patron savings requirement, which was their obligation.

[00:47:19] Speaker 02:
The bagged salad wasn't in that category.

[00:47:22] Speaker 04:
That's correct.

[00:47:22] Speaker 04:
The bagged salad was not part of the high volume core items and was not part of the patron savings.

[00:47:29] Speaker 02:
Okay.

[00:47:30] Speaker 02:
I think we're out of time.

[00:47:31] Speaker 02:
Okay.

[00:47:31] Speaker 04:
Your Honor, thank you so much.

[00:47:33] Speaker 02:
Thank both counsels.

[00:47:33] Speaker 02:
The case is submitted.