For most Government contractors, the so-called Christian doctrine is not among their favorite judicially-fashioned rules of contract interpretation. It provides that a mandatory Government contract clause that expresses a significant or deeply ingrained strand of procurement policy is considered to be included in a contract by operation of law. Thus, if a contract does not contain a particular clause, and if the Contracting Officer and Court subsequently agree that such clause should have been included despite its absence (and even if the contractor relied upon its absence), the contract shall be effectively modified and the contractor will nonetheless be bound by it.
Bay County, Florida vs. United States is a relatively rare case in which the Government found itself on the losing end the Christian Doctrine, and which also carries some interesting and significant implications.
The case involves two utility services contracts between Bay County and the Air Force, under which the County agreed to provide water and sewer services to Tyndall AFB. The dispute centers on whether these contracts permitted the County to unilaterally increase its utility rates or, conversely, whether rate increases required the mutual agreement of the parties. As initially executed (in the mid-1980s), the water contract allowed the County to unilaterally increase rates provided the conditions incident to a “general rate increase,” were present and satisfied. The sewage contract was different. It required bilateral negotiations and mutual agreement, and protected the Government further through an express most favored customer type clause.
Several years into performance, in December 1994, the FAR was amended to set forth the federal procurement policy and the standard contract clauses applicable to utility service contracts (such as the water and sewage contracts here), in what is now FAR Part 41. The FAR contemplates two general models by which the Federal Government can purchase such services: through a “regulated” utility service provider, in which the provider’s rates for service are set and controlled by an independent, public regulatory authority, or through an “unregulated” utility provider that determines its own rates, which are presumably subject to commercial market forces.
The FAR contains a corresponding “change of rate” clause for each model. Where regulated services are being supplied, FAR 52.241-7 instructs the utility to notify the Government of application to and approval by the independent regulatory body of any changes in the rates or terms and conditions of service, and the Government is obligated to accept the change. For the unregulated model, FAR 52.241-8 dictates that rate changes may only be accomplished through negotiation between the utility and the Government.
Approximately three years after these now-standard clauses were added to the FAR, the parties amended the sewage contract to replace the existing change of rate clause with the FAR version at 52.241-8, applicable to unregulated utility service providers (i.e., change of rate by negotiation). It is unclear whether the water contract was similarly amended. Thereafter, in 2000, the County increased the cost for water, and the Air Force acceded to the rate and paid the invoiced amounts. The sewage contract was amended in 2003 to reflect a rate increase and, again the Air Force did not object.
The County attempted to increase the rates for both water and sewage again in 2007 and, this time, the Air Force did object. Rather than pay the amounts invoiced by the County, the Air Force unilaterally modified the contracts reflecting an increase that was substantially less than what the County invoiced. The County then filed suit in 2011, asserting that its unilateral rate changes applied to the Air Force. The Air Force countered that, after 1997, when the parties incorporated the clause at FAR 52.241-8 (applicable to the “unregulated” model), the parties agreed that a change of rate could be accomplished only by negotiation and mutual agreement.
The Court sided with the County. Because the Court agreed with the County that it qualified as an “independent regulatory body,” which is defined in the DFARS, the Court concluded that the County had the power to “fix, establish or control the rates and services” it provided to its customers, including the Air Force. In so doing, the Court expressly rejected the Air Force’s argument that the County must be a “non-independent regulatory body” or a “body that regulates a utility supplier which is owned or operated by the same entity the created the regulatory body, e.g., a municipal authority.” DFARS 241.101.
Even so, said the Air Force, the County conceded its status as a non-independent regulatory body when it agreed to be bound by FAR 52.241-8. Again, the Court said not so, this time, based upon the Christian Doctrine, which “applies and binds the contracting parties to the mandatory contract term.” Specifically, because the Court determined that the County was an independent regulatory body:
"The court determines as a matter of law that the clause pertaining to independently regulated utilities, FAR 52.241-7, is incorporated into the contract in place of the improper clause, FAR 52.241-8, which is physically present.
As a threshold matter, the Court’s conclusion that the County qualified as an independent regulatory body is curious, if not unexpected. Under the Court’s reasoning, if Bay County created a regulatory body responsible for fixing and adjusting rates, and also owned and operated a utility service provider, the regulatory body would not be “independent,” and the service provider could change rates only by negotiation. However, if Bay County acts as both the regulatory body and the service provider, Bay County may be considered an “independent” regulatory body capable of fixing its own rates, because the State of Florida delegated to the County the power to regulate its utility rates. Apparently, the Court did not view this as a distinction without a difference.
What further can we draw from this case, aside from the fact that the Christian Doctrine is alive and well? First, the Christian Doctrine can be utilized against the Government as well as contractors. Second, it can remove an “improper” contract clause just as ably as it can “incorporate” a proper contract clause. Third, and most important, Bay County is a stark and certain reminder of why it remains vitally important for contractors to take the time to read the contract. Even though this particular case fell in favor of the contractor, contractors should be nonetheless aware that contracts with missing or improper terms shall be subject to modification, in the Government’s favor, and that sophistication and experience cannot stand in place of an understanding of express contract terms. This is a principle perhaps best captured by the words of my mentor, James Nagle: “Education is what you get when you read the fine print. Experience is what you get when you don’t.”
