
United States Court of Appeals for the Federal Circuit


                                04-1006



               Gordon R. England, SECRETARY OF THE NAVY,

                                                   Appellant,

                                   v.


                     CONTEL ADVANCED SYSTEMS, INC.,

                                                   Appellee.


      James D. Colt,  Attorney,  Commercial  Litigation  Branch,  Civil
Division, United States  Department  of  Justice,  of  Washington,  DC,
argued for appellant.  On the brief were Peter  D.  Keisler,  Assistant
Attorney General; David M. Cohen, Director; Mark A. Melnick,  Assistant
Director; and Nancy M. Kim, Trial Attorney.

      Gayle R. Girod, Reed Smith, LLP, of Washington,  DC,  argued  for
appellee.  With her on the brief was Natalia W. Geren.


Appealed from:  Armed Services Board of Contract Appeals

















         United States Court of Appeals for the Federal Circuit



                                04-1006


               Gordon R. England, SECRETARY OF THE NAVY,


                                                   Appellant,

                                   v.


                     CONTEL ADVANCED SYSTEMS, INC.,

                                                   Appellee.

                       ___________________________


                       DECIDED: October 6, 2004
                       ___________________________


Before NEWMAN, LOURIE and DYK, Circuit Judges.

Opinion for the court filed by Circuit Judge DYK.   Dissenting  opinion
filed by Circuit Judge NEWMAN.

DYK, Circuit Judge.

      Appellant the Secretary of the Navy (“the Navy”) appeals from the
decision of the Armed Services Board of Contract  Appeals  (“ASBCA”  or
“the Board”) finding the Navy liable to Contel Advanced  Systems,  Inc.
(“CASI”) for breach  of  contract  and  remanding  to  the  contracting
officer for determination of quantum.  Contel  Advanced  Systems,  Inc.
v. England, ASBCA Nos. 50648, 50649, 51048, 51049 (June 11, 2003).   We
hold that Contel’s claim  is  essentially  a  claim  for  interest  and
barred by the no-interest rule.  Accordingly, we reverse.


                               BACKGROUND
      This dispute  stems  from  a  contract  to  design,  install  and
maintain a telecommunication  system  (“the  project”)  for  the  Naval
Weapons Center in China Lake, California.  In 1987, the Navy  issued  a
request for proposal (“RFP”) for the project.  The project was to  take
place in two phases: (1) an  implementation  phase,  during  which  the
telecommunication system would be designed and  installed;  and  (2)  a
maintenance  and  administration  phase.   During  the   implementation
phase, the  contractor  would  first  prepare  a  station  design  plan
(“SDP”).  After the SDP was approved by the Navy, the contractor  would
install the system.  Thereafter,  “cutover”  (the  time  when  the  new
telecommunication system  replaced  the  old  one)  and  implementation
would occur.  If certain performance goals were met, system  acceptance
would occur 30 days after cutover.
      The dispute here involves one aspect of the contract relating  to
the implementation phase.  When the RFP issued, the Navy did  not  know
the exact quantities of certain types  of  station/ancillary  equipment
that it would need.  This equipment  was  listed  under  contract  line
item number B007 (“CLIN B007”).  Offerors were  instructed  to  provide
fixed unit prices for items under  CLIN  B007.   The  Navy  would  then
multiply the unit prices by its best estimate of quantity to arrive  at
a bid for the project.  The  RFP  stated  that  the  “total  price  for
[CLIN] B007 shall be redetermined based on the  quantity  of  equipment
actually installed,” pursuant to the  approved  SDP.   (J.A.  at  120.)
Thus, the amount of equipment included under CLIN B007 in the  original
offer was to be adjusted to reflect  the  actual  amount  of  equipment
installed according to the SDP, and the final price was to be  adjusted
accordingly.  The RFP asked potential offerors to quote prices for  the
implementation phase under four different  methods  of  purchase:   (1)
straight purchase, (2) lease  to  ownership  (“LTO”),  (3)  lease  with
option to purchase, and (4) straight lease.
      CASI submitted an offer  in  accordance  with  the  RFP  and  was
awarded the contract for the  project  in  September  1990.   The  Navy
opted to purchase the implementation phase of the contract at  the  LTO
price of $30,009,154.80 to be paid in 60 monthly  installments.   Under
the LTO option, the Navy’s installment payments  included  an  interest
component.
      CASI prepared its  initial  SDP  in  January  of  1991.   It  was
approved by the Navy a few  months  later.   Soon  after,  the  parties
executed several price modifications that increased the  tentative  LTO
price for the implementation phase to $36,223,371.  This new  tentative
LTO price was based on quantity estimates for several CLIN B007  items.
 The parties recognized that a number of these quantity estimates  were
significantly higher than the actual amount of equipment that would  be
installed under the approved SDP.  In January 1992 CASI  requested  the
Navy to reduce the LTO price to reflect these overestimates.  In  April
and May of 1992 CASI performed an audit to  ascertain  the  amounts  of
equipment actually installed  and  submitted  a  letter  to  the  Navy,
recommending that the LTO price be adjusted downward to $33.5  million.
 The parties met in May 1992 to modify the LTO price  but  were  unable
to agree to a modification at that time.  Thereafter, the  Navy  issued
a unilateral modification that, among other  things,  stated  that  the
LTO price for the implementation phase remained at approximately  $36.2
million.  Cutover occurred on April 10,  1992,  and  system  acceptance
occurred on May 11, 1992.
      In order to  fund  its  expenditures  during  the  implementation
phase, CASI obtained a loan from  its  parent  corporation.   The  full
balance of this loan was due upon system  acceptance.   However,  under
the project contract, CASI would  only  begin  to  receive  installment
payments for the implementation after system acceptance.  To repay  the
obligation to its parent corporation on system acceptance, CASI  sought
to obtain a third-party loan under which it  would  assign  the  Navy’s
installment payments  to  the  lender.   While  the  Navy  at  no  time
directed CASI to obtain financing, it refused to make payments  to  the
third-party lender unless the invoices  exactly  matched  the  official
contract price of approximately $36.2 million.  CASI concluded that  it
could obtain financing only if it  borrowed  the  full  amount  of  the
existing contract price.  CASI borrowed a  principal  of  approximately
$27 million, an amount equivalent to the May  1992  contract  price  of
approximately $36.2 million, once interest over the LTO term was  added
in.  The approximately $27  million  that  was  borrowed  exceeded  the
principal amount of the equipment actually  purchased  under  the  SDP.
The excess borrowed funds were placed in an  interest-bearing  account.
The interest rate on the deposited amount was far lower than  the  cost
of borrowing from the third-party lender.
      After system acceptance, the Navy began making  monthly  payments
of about $600,000 (approximately one-sixtieth of the official  contract
price of approximately $36.2 million)  to  CASI’s  third-party  lender.
This continued until October  1996  when  the  Navy  finally  issued  a
unilateral modification reducing the LTO price to  $32,351,679,  a  net
decrease of approximately $4.4 million.1  Curiously,  CASI,  which  had
earlier insisted that the Navy  reduce  the  contract  price,  objected
“that the LTO[ ] reconciliation was erroneous,  and  the  Navy  had  no
authority to unilaterally reduce the  contract  value.”   Contel,  slip
op. at 22.  At this time the Navy had  made  52  installment  payments.
After making another installment payment  in  November  and  a  partial
payment in December 1996, the Navy concluded that  it  had  repaid  the
entire adjusted contract price and ceased making installment  payments.
  Following  the  Navy’s  refusal  to  pay  the  remaining  installment
payments, the third-party lender  demanded  payment  from  CASI.   CASI
negotiated a new payment schedule with the  third-party  lender,  which
required it to pay the lender an  additional  $2,121,106,  representing
interest owed on the funds borrowed in excess  of  the  final  contract
price, less the interest CASI earned from the deposit  of  these  funds
prior to the determination of the final contract price.
      On February 4, 1997, CASI submitted  a  certified  claim  to  the
contracting officer  (“CO”)  for  $2,121,106,  which  as  it  explained
represented the additional interest costs it suffered as  a  result  of
the Navy’s failure to reconcile the LTO price  in  1992.   In  a  final
decision dated March 14, 1997, the CO denied this claim  because  there
“was no agreement for reimbursement of any costs incurred by  CASI  for
financing” and “[h]ow a contractor finances its efforts . .  .  is  not
the Government’s concern.”  (J.A. at 248-249.)  The CO also blamed  the
delay in finalizing  the  LTO  price  on  CASI’s  failure  to  promptly
provide an “accurate accounting” of the equipment installed.  (J.A.  at
248.)  Further, the CO determined that the Navy had  actually  overpaid
CASI by $279,464.32 and demanded repayment in this amount.
      Several months later, CASI submitted  a  second  certified  claim
that asserted “alternative theor[ies] of  recovery.”   (J.A.  at  251.)
Specifically, CASI argued that the  LTO  price  should  not  have  been
adjusted downward because it was set at a fixed price of  approximately
$36.8 million, regardless of the  quantities  of  equipment  installed.
CASI also urged that it was entitled to the “administrative costs”  and
attorney’s fees it  incurred  as  a  result  of  the  Navy’s  “wrongful
cessation of payments” to the third-party lender.   (J.A.  at  252–53.)
 Both of these theories were  also  rejected,  and  CASI  appealed  the
denial of both certified claims to the ASBCA.
      On June 11, 2003, the ASBCA issued a decision in favor of CASI on
its first certified claim.  The Board held that “the Navy  had  a  duty
to reconcile the [LTO price] no later than system  acceptance  and  its
refusal without a valid excuse to do so was a breach  of  its  duty  to
cooperate  and  a  breach  of  contract.”   Contel,  slip  op.  at   26
(citations omitted).  It rejected the Navy’s  arguments  that  “various
unresolved obstacles prevented it from reconciling the LTO[ ] price  by
system acceptance,”  because  it  found  that  “reconciliation,”  i.e.,
reduction of the  LTO  price  based  upon  the  quantity  of  equipment
actually  installed,  “could  have  been  accomplished  based  on   the
information in the SDP” and  that  “CASI  was  eager  to  complete  the
reconciliation.”  Id. at 30.
      The Board further held that the “no-interest rule”  did  not  bar
recovery  on  the  first  certified  claim,   which   represented   the
additional interest costs CASI suffered  as  a  result  of  the  Navy’s
failure to promptly reconcile the  LTO  price.   The  ASBCA  recognized
that generally the “no-interest rule” bars the recovery of interest  on
delayed or defaulted money payments from the government, but  that  the
rule can be waived by including “a provision in a  Government  Contract
for the payment of interest [that  is]  ‘affirmative,  clear  cut,  and
unambiguous.’”  Contel, slip  op.  at  27  (quoting  United  States  v.
Thayer-West Point Hotel Co., 329 U.S. 585, 590 (1947)).   According  to
the Board, the no-interest rule had been waived in  this  case  because
“[t]he payment of  interest  was  an  integral  part  of  the  parties’
contract.”  Id.  This was evidenced by the intentional inclusion of  “a
component for interest” in the required monthly  installment  payments.
Id.   Because “the payment of interest  .  .  .  was  required  by  the
contract” itself, the ASBCA held that the no-interest rule did not  bar
recovery on CASI’s first certified claim.2  Having  decided  that  CASI
was entitled to  recover  on  its  first  certified  claim,  the  ASBCA
remanded to the CO for a determination of quantum.
      The Board dismissed as duplicative the  alternative  theories  of
recovery presented in CASI’s second certified claim. It explained  that
the second certified claim did  not  present  new  claims,  but  merely
“present[ed] an alternate method of measuring  CASI’s  claimed  damages
and  supplement[ed]  the  [first]  certified  claim   to   specifically
identify certain costs allegedly incurred in  repairing  its  financial
relations . . . when the Navy ceased making the payments called for  by
the payment schedule.”  Id. at 24.
      The Navy appealed the ASBCA’s decision on CASI’s first  certified
claim.  We have jurisdiction pursuant to 28 U.S.C. § 1295(a)(10).
                               DISCUSSION
      We review legal  conclusions  of  the  ASBCA  without  deference.
Rumsfeld v.  Applied  Cos.,  325  F.3d  1328,  1334  (Fed.  Cir.  2003)
(“Applied Companies”).  The interpretation of a contract by  the  ASBCA
is a question of law that is  reviewed  without  deference  on  appeal.
Metric Constructors v. Nat’l Aeronautics and  Space  Admin.,  169  F.3d
747, 751 (Fed. Cir. 1999).  The Board’s findings of fact  are  accepted
unless they  are  “fraudulent,  or  arbitrary,  or  capricious,  or  so
grossly erroneous as  to  necessarily  imply  bad  faith,  or  if  such
decision is not  supported  by  substantial  evidence.”   E.L.  Hamm  &
Assocs. v. England, 379 F.3d 1334, 1338 (Fed. Cir. 2004).
                                   I
      We must first determine whether  we  have  jurisdiction  to  hear
this case.  CASI contends that the decision of the ASBCA was not  final
because it decided only entitlement and  did  not  reach  quantum.   We
disagree.
      Although 28 U.S.C. § 1295(a)(10)  refers  to  an  appeal  from  a
“final decision,” our cases have repeatedly held that  the  concept  of
finality in this context is a flexible concept.  Brownlee  v.  Dyncorp,
349 F.3d 1343,  1347  (Fed.  Cir.  2003)  (“Dyncorp”).   Under  section
1295(a)(10), “[t]he relevant inquiry in determining finality . .  .  is
‘the scope of the contracting officer’s decision, for  this  determines
the extent  of  the  contractor’s  right  of  appeal  and  the  board’s
jurisdiction.’” Id. (quoting Dewey Elecs. Co.  v.  United  States,  803
F.2d 650, 655 (Fed.  Cir.  1986)).   In  cases  where  the  contracting
officer  had  not  yet  reached  issues  of  quantum  and  thus,   only
entitlement was before the Board, we have repeatedly found the  Board’s
decision on entitlement  “final”  and  within  our  jurisdiction  under
section 1295(a)(10).  See Dyncorp., 349 F.3d  at  1347;  Applied  Cos.,
325 F.3d at 1333 n.3; Dewey, 803  F.2d  at  654-58.   As  we  noted  in
Applied  Companies,  “where  the  contracting  officer   decided   only
entitlement and the board thereafter decided entitlement  and  remanded
to the parties regarding quantum, the board’s decision  was  final  and
thus appealable.” 325 F.3d at 1333 n.3.
      In this case, we  have  jurisdiction  under  section  1295(a)(10)
because the scope of the CO’s decision was limited to the  question  of
entitlement.  CASI argues that  the  CO  decided  quantum  because,  in
addition to rejecting CASI’s claims, the CO determined  that  the  Navy
had overpaid CASI in the amount of $279,464.32.   However,  the  Navy’s
overpayment claim against CASI  was  separate  from  CASI’s  claim  for
damages against the Navy.3  Because the CO  determined  that  CASI  was
not entitled to damages, the CO never determined the  quantum  required
by CASI’s claims.  The ASBCA recognized the limited scope of  the  CO’s
decision.  It stated that “[o]nly entitlement is before the Board”  and
“remanded to the parties to negotiate quantum.”  Contel,  slip  op.  at
2.  Thus, we conclude that the ASBCA’s decision was a “final  decision”
on the issue of  entitlement.   There  is  jurisdiction  under  section
1295(a)(10) to hear the Navy’s appeal.4
                                   II
      On the merits, the Navy argues  that  CASI  is  seeking  interest
damages that are barred by the no-interest rule.  The no-interest  rule
bars the award of interest  damages  on  a  claim  against  the  United
States.  Library  of  Congress  v.  Shaw,  478  U.S.  310,  317  (1986)
(“Shaw”).  The appellant contends that the ASBCA erred by  inferring  a
waiver of that rule.  We agree with the Navy that the no-interest  rule
is applicable here and has not been waived.
                                   A
      CASI urges that the  no-interest  rule  does  not  apply  because
“[t]he interest CASI seeks is not interest on a substantive claim,  but
the cost of money that the Government agreed to pay in order  to  defer
payment.”  (Br. of Appellee at 13.)
      The no-interest rule is an aspect of the basic rule of  sovereign
immunity.  See Shaw, 478 U.S. at 315; see also Smith v.  Principi,  281
F.3d 1384 (Fed. Cir. 2002).  It has been construed to apply broadly  to
claims for interest.  In Shaw the Supreme Court explained that:
      [T]he force of the no-interest rule cannot be avoided  simply  by
      devising a new name for an old institution:  “[T]he character  or
      nature of ‘interest’ cannot be changed by calling  it  ‘damages,’
      ‘loss,’  ‘earned  increment,’  ‘just  compensation,’  ‘discount,’
      ‘offset,’ or ‘penalty,’ or any other term, because  it  is  still
      interest and the no-interest rule applies to it.”

Shaw, 478 U.S. at  321  (quoting  United  States  v.  Mescalero  Apache
Tribe, 518 F.2d 1309, 1322 (Ct. Cl. 1975)  (alteration  in  original)).
The rule has been held not only to bar  the  recovery  of  interest  on
substantive claims against the government, see, e.g., Smith,  281  F.3d
at 1387, but also interest  costs  incurred  on  money  borrowed  as  a
result of the government’s breach or delay in payment, see, e.g.,  J.D.
Hedin Constr. Co. v. United  States,  456  F.2d  1315,  1330  (Ct.  Cl.
1972); see also Komatsu Mfg. Co. v. United States, 131  F.  Supp.  949,
950 (Ct. Cl. 1955); Ramsey v. United States, 101 F. Supp.  353,  356-57
(Ct. Cl. 1951); Myerle v. United States, 33 Ct. Cl. 1, 25 (1897).   For
example, in J.D. Hedin, our predecessor court held that, like  interest
on substantive claims against the government, “[i]nterest paid on  bank
loans made because of financial stringency resulting from a  breach  by
the Government of a  contract  between  it  and  the  borrower  is  not
recoverable.”  456  F.2d  at  1330.   The  court  noted  that  had  the
plaintiff “used his own money and so lost the interest which  it  might
have earned for him, the claim  .  .  .  would  not  have  differed  in
principle.”  Id. (quoting Myerle, 33 Ct. Cl. at 25).
      So too, the no-interest  rule  is  applicable  to  CASI’s  claim.
CASI’s claim states that the claimed “amount  represents  the  interest
on funds which CASI urged the Navy to prepay in the  Spring  of  1992.”
(J.A. at 245.)   In  other  words,  CASI  is  seeking  to  recover  the
interest it paid on the extra money  it  was  forced  to  borrow  as  a
result of the Navy’s delay  in  reconciling  the  LTO  price.   In  the
absence of a waiver, the no-interest rule bars  the  recovery  of  such
interest damages against the government.  See, e.g.,  J.D.  Hedin,  456
F.2d at 1330; Komatsu, 131 F. Supp. at 950; Ramsey,  101  F.  Supp.  at
356-57; Myerle, 33 Ct. Cl. at  25.
                                   B
      In the alternative, CASI argues that  the  no-interest  rule  has
been waived by provision of  its  contract  with  the  Navy.   The  no-
interest rule can be waived only by “specific provision by contract  or
statute, or express consent  by  Congress.”   Shaw,  478  U.S.  at  317
(internal quotation and alterations omitted); see  also  United  States
v. Thayer-West Point Hotel Co., 329  U.S.  585,  590  (1947)  (“Thayer-
West”) (stating that  a  provision  requiring  the  government  to  pay
interest “must be affirmative, clear-cut, [and] unambiguous.”).   While
there is no argument that the rule was waived by statute,  CASI  argues
the Navy waived the no-interest rule because the LTO  price  under  the
contract included an interest component.  We disagree.
      The claim here is not for  the  interest  component  of  the  LTO
price, which the Navy has already paid.  Instead,  CASI  claims  it  is
entitled to “the additional amount of interest . . . owed to the  bank”
as a result of its third-party financing.  (Br.  of  Appellee  at  20.)
The inclusion of the interest component in the  LTO  price  is  not  an
“affirmative,  clear-cut,  [and]  unambiguous”  agreement  to  pay  for
additional interest accrued on a third-party loan as the result of  the
Navy’s breach.  See Thayer-West, 329 U.S. at  590.   To  the  contrary,
the contract is silent as to the method by which CASI was to  fund  the
project.
      The ASBCA  found  that  the  Navy  “insist[ed]  that  the  amount
borrowed reflect the current LTO[ ] contract amount” and  that  “CASI’s
decision to proceed as it did [by borrowing more money than it knew  it
was actually due] was a reasonable response.”  Contel, slip op. at  16.
 The basis for these findings  is  less  than  clear.   CASI  does  not
explain  how  the  Navy’s  insistence  on  the  rendering  of  invoices
corresponding to the May 1992 contract price compelled CASI  to  borrow
more money  than  it  knew  it  would  ultimately  be  paid  under  the
contract.  However,  even  assuming  that  the  Board’s  findings  were
correct, at most the Navy required only  that  CASI  borrow  an  amount
equivalent to the May 1992 LTO price, if CASI  elected  to  assign  the
Navy’s installment payments.  There is  no  suggestion  that  the  Navy
required CASI to obtain financing,  or  otherwise  instructed  CASI  to
borrow money.  Indeed, the Board specifically found  that  “[t]he  Navy
did not instruct CASI to borrow money, nor express any  opinion  as  to
whether or not CASI should enter into any particular form of  financing
agreement.”  Contel, slip op. at 8.  The fact that the Navy  was  aware
of  the  financing  arrangement,  and  apparently  inflexible  in   its
requirements  for  assignment  of  the  installment  payments,  is  not
sufficient to waive the no-interest rule.
      Because there has been no waiver, the no-interest rule bars  CASI
from recovering the excess interest costs that occurred as a result  of
the Navy’s failure to promptly reconcile  the  LTO  price  upon  system
acceptance.  The ASBCA erred in  holding  that  CASI  was  entitled  to
recover on its first certified claim.
                                  III
      Finally, CASI contends that its second certified  claim  provided
an  “alternative  theory  of  recovery”  that  was  not  based  on  the
additional amount of interest that CASI owed  the  third-party  lender,
and therefore is not barred by the no-interest rule.  (Br. of  Appellee
at 20.)  Under this alternative theory, CASI argues that  the  cost  of
the implementation phase was awarded on a fixed price basis for  a  LTO
price of approximately $36.8 million.  Because  the  price  was  fixed,
CASI contends that it  is  entitled  to  “the  difference  between  the
current LTO[ ] fixed price of $36,802,685.08 and  the  amount  paid  to
date by the Navy for  [the  implementation  phase].”   (J.A.  at  252.)
This argument fails for a number of reasons.
      First, both  the  contract  and  the  RFP  make  clear  that  the
estimated quantities of CLIN B007 equipment, upon which the  LTO  price
was based, were subject to change.  The project contract  stated  that:
“[t]his  is  an  indefinite-quantity  contract  for  the  supplies   or
services specified . . . in the Schedule.   The  quantity  of  supplies
and services specified in the Schedule are estimates only and  are  not
purchased by this contract.”  (J.A. at  93.)   So  too,  the  RFP  made
clear that the LTO price was not fixed.  It recited that  “[t]he  total
price for [CLIN] B007 shall be redetermined based on  the  quantity  of
equipment  actually  installed  in  accordance  with  the   Government-
approved Station Design Plan.”  (J.A. at 120.)
      Moreover, both parties clearly understood that the LTO price  was
not fixed.  CASI in fact repeatedly urged the Navy to  adjust  the  LTO
price  to  reflect  the  actual  quantity   of   equipment   installed.
According to the ASBCA’s findings, CASI asked the Navy  to  adjust  the
LTO price to approximately $33.5 million prior  to  system  acceptance.
The parties later met in a failed attempt to modify the  LTO  price  to
reflect  the  equipment  installed  under  the   SDP.    After   system
acceptance in June and July of 1992, CASI continued to  urge  the  Navy
to decrease the LTO price.  Contel, slip op. at 19.
      For these reasons,  we  conclude  that  the  LTO  price  for  the
implementation phase of the project  was  not  fixed,  but  was  to  be
adjusted according to the actual quantity of equipment  installed.   We
therefore reject this “alternative theory of recovery” as presented  in
CASI’s second certified claim.5
                               CONCLUSION
      We hold  that  the  no-interest  rule  applies  to  CASI’s  first
certified claim for interest  damages  incurred  as  a  result  of  the
Navy’s  delay  in  reducing  the  LTO  price  to  reflect  the   actual
quantities of equipment installed.  Because we conclude that there  has
been no waiver of the no-interest rule, the ASBCA’s decision that  CASI
was entitled to damages under the first certified claim was  erroneous.
 We also reject as a matter of law  CASI’s  “alternative”  theories  as
set forth in the second certified claim.  Accordingly, the decision  of
the ASBCA is
                               REVERSED.
                                 COSTS
      No costs.



         United States Court of Appeals for the Federal Circuit




      04-1006



      Gordon R. England,
      SECRETARY OF THE NAVY,

                                             Appellant,

      v.

      CONTEL ADVANCED SYSTEMS, INC.,

                                             Appellee.




NEWMAN, Circuit Judge, dissenting.



      The Navy did not appeal the decision of the Armed Services  Board
of Contract Appeals that this  contract  was  breached  to  the  extent
found by the Board.  Nor is it disputed  that  Contel  (CASI)  suffered
monetary injury by the  breach.   The  panel  majority's  holding  that
damages cannot be assessed because they are measured  by  the  cost  of
money   is   contrary   to   fundamental   principles   of   commercial
relationships, and outside the scope of the "no-interest  rule."   Thus
I must, respectfully, dissent.
      In accordance with the contract between the Navy and  CASI,  CASI
provided  and  installed   a   telecommunications   system,   including
equipment for which the Navy  estimated  the  maximum  quantity  at  an
estimated cost of $36,223,371.  This  estimate  was  derived  from  the
line item cost per unit (CLIN B007) times the Navy's  estimate  of  the
maximum number of units; these were the parameters of this  indefinite-
quantity
contract, and the validity of their adoption is not  in  dispute.   The
contract  provided  for  payment  by  the   Navy   in   sixty   monthly
installments,  to  commence  following  acceptance  of  the   completed
installation.  It was understood, and the contract provides,  that  the
total cost would be based on the number of  units  that  were  actually
installed.
      Before completion of the installation it was recognized  by  both
the Navy and CASI  that  the  actual  cost  would  be  several  million
dollars below the stated  maximum.1   Starting  in  January  1992  CASI
requested a downward adjustment of the  contract  maximum;  the  record
reports persistent requests by CASI for  a  cost  reconciliation,  upon
acceptance of the installation on May 11, 1992,  and  thereafter.   All
of these requests were in vain, for four and a half years.  This  delay
is significant because the Navy refused to make payments to the  lender
(as the financing terms required) unless the  invoices  were  based  on
the original $36,223,371 contract maximum.  Thus CASI  was  obliged  to
carry several million dollars of excess borrowing for over four years.
      In  October  1996  the  Navy  made   the   appropriate   contract
modification, reducing the contract cost.  The  Navy  testified  before
the Board that it knew that less equipment had been installed than  was
originally projected, at lower total cost.  The Board ruled  that  "the
Navy had a duty to reconcile the LTOP [Lease-to-Ownership  Plan]  price
no later than system acceptance and its refusal without a valid  excuse
to do so was a breach of its duty to cooperate  and  a  breach  of  the
contract."  The Navy does not appeal the finding of breach; the  appeal
is solely on the question of entitlement to damages.2
      The panel majority, reversing the Board, holds that  the  awarded
damages are "interest" and therefore barred by  the  no-interest  rule.
That is not a proper application of the rule.  These  damages  are  not
interest on a claim against  the  government,  whereby  interest  on  a
monetary  obligation  of  the  government  is  not   available   unless
authorized by statute or agreed by contract.  See Library  of  Congress
v. Shaw, 478 U.S. 310, 317 (1986) (interest does not run on a  judgment
against the United States, absent consent  or  authorization);  Komatsu
Mfg. Co., Ltd. v. United States,  131  F.  Supp.  949  (Ct.  Cl.  1955)
(same).  The  damages  here  at  issue  are  the  direct  cost  to  the
contractor of the government's breach of contract.
      The panel majority states that  "[t]he  no-interest  rule  is  an
aspect of the basic rule of  sovereign  immunity."   Op.  at  10.   The
basic rule of "sovereign immunity," that the ruler could  not  be  sued
without  his  consent,  was  not  directed  to  interest,  but  to  the
underlying liability.  The ancient bar to  recovery  of  interest  when
there was a valid underlying  obligation  reflects  the  canonical  and
common law prohibitions of usury, not the divine right of  kings.   See
Shaw, 478 U.S. at 315 (citing C. McCormick, Law of  Damages,  Sec.  51,
p. 508 (1935) (in early  common  law,  interest  was  allowed  only  by
agreement of the parties, and was limited in  amount)).   As  discussed
in Shaw, 478 U.S. at 315-16,  the  government  has  been  permitted  to
"occupy an apparently  favored  position"  (quoting  United  States  v.
Verdier, 164 U.S. 213, 219 (1896)).  Enlarging the
government's freedom from liability for breach of  its  obligations  is
unwarranted.  "Sovereign immunity" is  not  a  tool  of  unfairness  to
those who do business with government.  It should not  be  uncritically
expanded.
      The Board's decision in  favor  of  CASI  was  not  an  award  of
interest on a claim against the government or a  judgment  against  the
government or a debt of the  government.   The  Board  recognized  that
monetary injury resulted  from  the  Navy's  refusal  to  cooperate  in
reconciling the contract after completion  of  installation,  for  this
breach required CASI to maintain  higher  borrowing  than  was  needed.
This is  not  a  situation  in  which  the  contractor  had  to  borrow
additional sums to perform a contract after  it  was  breached  by  the
government, as in J. D. Hedin Constr. Co. v. United  States,  456  F.2d
1315, 1330 (Ct. Cl. 1972).  The  Hedin  court  held  that  interest  on
"bank loans made because  of  financial  stringency  resulting  from  a
breach by the Government of a contract between it and the  borrower  is
not recoverable as an item of damage."  And the  Navy's  breach  herein
was not "a breach of contract to pay money  which  results  only  in  a
delay in payment," as in Ramsey v. United States,  101  F.  Supp.  353,
356 (Ct. Cl. 1951); there was no issue of delay in payment.
      CASI alternatively pointed out  that  even  on  the  government's
theory that the damages should be treated as retaining  their  identity
as  interest  on  the  LTOP  borrowing,  the  Lease-to-Ownership   Plan
included a factor for interest.  The Board found: "The Navy  chose  the
LTOP option based on a present value analysis based on a  10%  interest
rate."  Thus CASI offered the argument that the contract  provides  for
payment of the obligation that CASI actually incurred, thereby  waiving
recourse to a no-interest rule.  It was undisputed  that  the  contract
cost included recovery of the interest incurred in the LTOP option.
      When damages flow from breach  of  an  obligation  that  involves
money, the nature  of  the  obligation  and  its  relationship  to  the
economic injury must be considered in determining whether the  cost  of
money is properly included in damages.  In this case,  the  correctness
of  that  measure  is  not  challenged  by  the  panel  majority.   The
liability  assessment  by  the  Board  of  Contract  Appeals  does  not
conflict with law, and implements the national policy  of  fairness  to
contractors.  See Rumsfeld v. Applied Co., 318 F.3d  1317,  1336  (Fed.
Cir. 2002) (the non-breaching party is entitled  to  the  damages  that
would place it in the  position  it  would  have  occupied  absent  the
breach); Mass. Bay Transp. Auth. v. United States, 129 F.3d 1226,  1232
(Fed.  Cir.  1997)  (same).   The  Board's  award  of  damages  in  the
circumstances of this case is  not  barred  by  statute  or  precedent.
From the court's contrary ruling, I respectfully dissent.


      1
       The  October  1996  modification  decreased  the  LTO  price  by
$6,978,825.08 to account for  the  overestimates  to  CLIN  B007.   The
modification  also  proposed  to  purchase   a   switch   upgrade   for
$2,527,769.00.  The net decrease in LTO price was $4,451,056.08.

      2
      The ASBCA also reversed the CO’s determination that the Navy  was
entitled to recover $279,464.32 from overpayments to CASI.


      3
      The Navy does not challenge on appeal the ASBCA’s denial  of  its
claim for overpayment.
      4
      We also reject CASI’s argument that  the  Navy’s  appeal  is  not
timely because it addresses only damages issues  and  not  entitlement.
The appeal is not directed to the  quantum  of  damages.   Rather,  the
Navy “challenges the board’s holding that the Government is  liable  to
pay interest,” i.e., whether CASI can recover anything at all.   (Reply
Br. of Appellant at 8.)  In its determination of entitlement the  ASBCA
properly reached this question and decided  it  in  CASI’s  favor.   We
have jurisdiction to hear the Navy’s appeal from that decision.
      5
      We also reject CASI’s claim for “administrative  costs”  stemming
from the Navy’s “wrongful cessation of  payments”  to  the  third-party
lender.  For the reasons stated above, the  cessation  of  payment  was
not wrongful.
      1

      The final audit showed a cost reduction of  $6,978,825.08.   Some
two million dollars of this amount were used by the  Navy  to  purchase
other equipment; this aspect is not at issue.

      2

      The amount of damages was not determined;  the  Board's  decision
was limited to entitlement.


