A recent Federal Circuit decision supplies helpful direction to contractors wishing to incorporate their standard commercial terms and conditions into their government contracts. The federal government often claims that it wants to make its contracting process more like the commercial marketplace, but the government does not make it easy for commercial companies to do business with it. CSI Aviation, Inc. v. Dep’t of Homeland Security highlights the potential confusion surrounding the terms and conditions governing government contracts for commercial products or services. There, the contractor succeeded after several levels of appeals, with the Federal Circuit ruling that the contractor’s cancellation policy was incorporated by reference into its contract. To minimize disputes over which terms apply, federal contractors should ensure that their standard commercial terms and conditions are unambiguously incorporated by reference.     

Case Summary

CSI Aviation Inc. (CSI) offers passenger and cargo air charter, aircraft leasing, and comprehensive aircraft management. It held a GSA Schedule Contract to provide a full range of travel services to the government. CSI’s Schedule Contract included three other documents expressly “incorporated and made a part of the contract,” including CSI’s Offer, which in turn referenced CSI’s Terms and Conditions. CSI’s Terms and Conditions stated that it “will apply to all operations” and included a provision stating that a “25% non-refundable cancellation charge will apply for up to 14 days prior to flights, and 100% cancellation charge will apply if less than 14 days prior to flights.”

In 2014, U.S. Immigration and Customs Enforcement (ICE) awarded CSI five task orders under CSI’s Schedule Contract for removal missions out of five domestic airport hubs. While CSI was performing these task orders, ICE cancelled several flights less than 14 days before the flights. Consistent with its cancellation policy, CSI invoiced ICE for the total estimated amount of the cancelled removal missions: $983,801.25. ICE balked at paying for work that had not been performed and denied the invoices because the flights never took off.

CSI submitted six certified claims for the unpaid invoices, and ICE denied the claims. CSI appealed and consolidated those denials at the Civilian Board of Contract Appeals. ICE moved for summary judgment, arguing that the cancellation fee was not part of the Schedule Contract. The Board agreed, finding that the Schedule Contract did not incorporate the CSI Terms and Conditions by reference. The Board gave several reasons for this finding, including that the Terms and Conditions were not listed among the six documents expressly incorporated into the contract, that the phrase “will apply to all operations” to refer to the Terms and Conditions was “not the type of phrase that should be read as expressly incorporating fully into the contract some extrinsic text containing additional contract terms,” and that there was residual ambiguity around the document being referenced in CSI’s claim. 

The Federal Circuit reversed this decision, holding that the Schedule Contract incorporates the CSI Terms and Conditions by reference. The Federal Circuit offered three main reasons:

  • There was clear and express language establishing the identity of the documents being referenced. The Schedule Contract specifically incorporated CSI’s Offer and the Offer plainly identified the CSI Terms and Conditions in the “Pricing” section of its table of contents. Further, the Offer’s Pricing Policy contains a “Terms and Conditions” provision that expressly states, “CSI Terms and Conditions . . . will apply to all operations and are included for reference.”
  • The express language incorporating some contract documents does not preclude the incorporation of others. The use of “magic words” of incorporation is not necessary.
  • The phrase “will apply to all operations” should be considered within the context in which it is used and is not inherently ambiguous.

The Federal Circuit remanded the dispute to the Board to determine whether the terms and conditions may be inapplicable for some other reason.

Takeaways for Contractors

While it appears that CSI will be vindicated, this case provides a useful reminder for contractors wishing to incorporate their commercial terms and conditions into government contracts: Be clear and unambiguous. While as a matter of law the contractor may be able to incorporate a document that further incorporates other documents, that is not the best practice. It would have been easier, quicker, and cheaper to resolve CSI’s disputes if the Schedule Contract itself listed “CSI’s Terms and Conditions” among the incorporated documents.

Companies wishing to incorporate their standard terms and conditions into their government contracts should pay close attention to this decision. PilieroMazza’s attorneys are here to help ensure that your contract effectively incorporates those terms and conditions. If you have questions, please contact Kevin Barnett, the author of this blog, or another member of the Firm’s Government Contracts Group.

Special thanks to law clerk Lucinda Hendrix for her assistance with this post.