                ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of --                                   )
                                               )
Distributed Solutions, Inc.                    )      ASBCA No. 57266
                                               )
Under Contract No. F4 l 999-99-C-0027          )

APPEARANCES FOR THE APPELLANT:                        Stephen M. Faraci, Sr., Esq.
                                                      Thomas A. Coulter, Esq.
                                                       LeClairRyan
                                                       Richmond, VA

APPEARANCES FOR THE GOVERNMENT:                       Col Robert J. Preston II, USAF
                                                       Acting Air Force Chief Trial Attorney
                                                      Christine C. Piper, Esq.
                                                      Skye Mathieson, Esq.
                                                       Trial Attorneys

                  OPINION BY ADMINISTRATIVE JUDGE CLARKE

       Distributed Solutions, Inc., (DSI) claims that the Air Force Non-Appropriated
Fund Purchasing Office (AFNAFPO) must pay it a license fee for using the Internet-
Based Purchasing System (IBPS) software that it owns. The AFNAFPO agrees that DSI
owns the software, but contends that it has the right to use its version of the IBPS at
no cost.

                                 FINDINGS OF FACT

Order No. F41999-97-F-6019

        1. Order No. F41999-97-F-6019 (6019) under Contract No. 263-97-D0334 was
awarded by AFNAFPO, San Antonio, Texas, to GCG Computers (GCG) on 8 October
1997 to develop an IBPS (R4, tabs 54, 73). The $392,385 contract listed three contract
line item numbers (CLINs):

               0001 Software Development, CLIN 6175, convert the
                    Electronic Commerce Purchasing System (ECPS) from
                    a DOS based program to an internet/intranet program
                    in accordance with the attached statement of work,
                    requirements incorporated by the question answer
                      session of the pre-proposal conference, and the
                      proposal submitted by GCG. ($376,000.00)

               0002 Training, CLIN 9002, training of 50 Agency personnel
                    either at 9504 IH 35 Nor Airport Center Building in
                    San Antonio TX. ($12,500.00)
               0003 NIH administrative fee, CLIN 9999, l % of total.
                    ($3,885.00)

(Id.) Delivery was specified as 30 September 1998 (id.).

        2. The "Statement of Work Development of Internet-based Purchasing System"
(SOW) had the stated objective: "To obtain customized software or existing
commercial-off-the-shelf (COTS) software that will be modified to meet 100 percent of
the specifications in this statement of work" (R4, tab 55 at 190, tab 73 at 292). The SOW
set forth the organizational structure that must be supported, a description of the current
Electronic Commerce Purchasing System (ECPS) and the "System Requirements" for the
IBPS (R4, tab 55 at 189-95, tab 73 at 291-97).

       3. Judd's, Inc., the major subcontractor working with GCG, submitted the
technical proposal that was physically included in the contract at award (R4, tabs 57,
73 at 272-90). Part II of Judd's, Inc.'s proposal, "Proposed Solutions and Associated
Costs" discussed Architecture, Project Development Process, Project Development
Milestones, Delivery Time, and Technical Support (R4, tab 57 at 217, tab 73 at 284).
The Architecture section lists a variety of primarily Microsoft® commercial COTS
products that would be employed to provide the required customized solution (R4, tab 57
at 217-20, tab 73 at 284-87). The Source Code Management paragraph provided that "all
source code developed specifically for the project will be delivered with the project as
part of the baseline fixed cost" (R4, tab 57 at 219, tab 73 at 286). The Project
Development Milestones included two prototypes, a system pilot and system
implementation. After system implementation, a 90-day warranty period went into effect
followed by help desk support. (R4, tab 57 at 221-22, tab 73 at 288-89)

        4. The two copies of the 6019 Order in the record do not have a list of clauses
incorporated by reference or any provisions addressing intellectual property (R4,
tabs 54-57, 73) 1• The copy ofthe 6019 Order in DSI's supplement to the Rule 4
included, "Answers to Questions Posed Regarding the Internet-based Purchasing System"
that included the following:



1
    The record does not contain the terms and conditions of Contract No. 263-97-D0334.


                                             2
             Q26. What rights does AFNAFPO expect to retain with
             respect to the internet purchasing system?

             A26. We expect to be able to provide the full range of
             purchasing functionality offered by the internet purchasing
             system to all government NAF entities. We need to remove
             the DoD stipulation from the arrangement as made with
             Loren Data, as Coast Guard installations (DoT) use NAF
             funds, as well as a small handful of other government offices,
             i.e. the CIA dining room in the Pentagon.

(R4, tab 73 at 309, 314) The IBPS was not completed under the 6019 Order.

Contract No. F41999-99-C-0027

        5. On 19 August 1999, Contract No. F41999-99-C-0027 (0027) in the total amount
of $276,700 was awarded by AFNAFPO to Judd's Online, Inc. ("Judd's") for completion
of the IBPS (R4, tab 1). The contract included seven CLINs:

             0001 - Completion of software development for Internet
             Based Purchasing System (IBPS). System shall be an
             internet/intranet program in accordance with the attached
             statement of work (SOW). A core system (including User's
             Guide) will be completed and tested no later than
             30 November 1999. System will be upgraded to SQL 7.
             $199,700

             0002 - Installation of existing system. Installation shall be
             completed no later than 31August1999 .... $7500

             0003 - Maintenance program for the IBPS - This is an annual
             maintenance program with an option to extend annually up to
             5 years from original start date .... $50,000 annually

             0004 - Help Desk - This is an annual help desk program with
             an option to extend up to 5 years from original start date ....
             $15,000 annually

             0005 - 100% system installation .... $7500




                                            3
               0006 - Training-Training includes no more that 50 personnel
               per session, situated at the Headquarters Services Agency or
               the AFNAFP0 .... $12,000 annually

               0007 - Enhancements: Scope, price, and performance period
               of program enhancements shall be negotiated between the
               parties.

(Id. at 2) The period of performance was "5 years from the signature date of the
contracting officer with an option to extend an additional 5 years" (id.). Attachments
1 and 2 to the 0027 contract identified and prioritized the development tasks remaining to
be accomplished to complete the IBPS (R4, tab 1 at 20, tabs 2, 3).

       6. The IBPS was to replace a DOS-based ECPS still being used by AFNAFPO at
the time of contract award (R4, tab 1 at 5). The "Objective" in the Statement of Work was
"[t]o obtain customized software or existing commercial-off-the-shelf (COTS) software that
will be modified to meet 100 percent of the specifications in this statement of work" (id. at
3). The contract at award did not include an intellectual property rights provision. There
was no provision requiring AFNAFPO to pay royalties to use the IBPS.

       7. On 18 October 2000, Judd's (Transferor), SMC Interactive, Inc., (SMC)
(Transferee) and the AFNAFPO contracting officer signed a novation agreement
transferring contract 0027 from Judd's to SMC (R4, tab 7). Paragraph A.4 of the
novation states: "The Transferee has assumed all obligations and liabilities of the
Transferor under the contracts by virtue of the above transfer" (id. at 54 ). The novation
agreement was incorporated into the 0027 contract by Modification No. 003 on
11 December 2000 (R4, tab 6).

      8. Through a series of name changes, SMC became SMC Interactive c/o BlazeNet
(BlazeNet), and eventually SMC Interactive, Inc., c/o Susquehanna Technologies, Inc.,
(SusQTech) (R4, tabs 8, 10; compl. ii 10). 2

Modification No. MOO 15

       9. On 12 September 2003, Mr. Strimple, Partner SusQTech, emailed Ms. Jones,
Chief, Policies & Procedures Branch, AFNAFPO, (tr. 2/161) an escrow and intellectual
property document for her review that read in part:

              AFNAFPO retains a perpetual non-exclusive license to utilize
              the !BPS system for the purpose of operating an electronic

2
    From here on we use "SusQTech."


                                             4
              eProcurement system within the AFNAFPO organization.
              This perpetual license may not be sold, transferred, assigned
              or conveyed to any third party.

(Supp. R4, tab 100 at 10017-18) Ms. Jones forwarded this document to Mr. Sawyer,
Ms. Runkle and Mr. Woodard for review on 9 April 2004 (supp. R4, tab 100 at 10017).
Ms. Runkle, an AFNAFPO contract specialist (tr. 2/199), testified about this language,
"[i]t was what we wanted, continual never ending use of the source code" (tr. 2/219).

       10. On 30 December 2004, Mr. Sawyer, AFNAFPO, sent Ms. Runkle the "latest
wording from Doug [Stock, Director SusQTech] with the changes we asked for" (R4,
tab 59 at 229, 60 at 228). The changed language read in part:

             AFNAFPO's rights to the /BPS system are hereby limited to
             its employment for the purpose of operating an electronic
             eProcurement system for the AFNAFPO organization.
             AFNAFPO's rights are continuous and nonexclusive.

(Id. at 230) Ms. Runkle testified that this was an update of the "initial language" attached
to the 9 April 2004 email (tr. 2/232; supp. R4, tab 100 at 10018). Ms. Runkle recalled
that when "they" were reviewing Modification No. MOO 15 (Mod. MOO 15) they asked that
the language "perpetual license" not be used because "[w ]e were not paying licensing for
IBPS and that is why we requested that we not use the term perpetual license in the
modification" (tr. 3/27). Ms. Runkle explained, "[w]e paid to have the application
developed. It belonged to us, we wanted it, it was ours .... [T]he whole idea of developing
IBPS [was] so that they would not have to pay costs to use the system." (Tr. 2/234)
She testified that the word "continuous" that replaced the word "perpetual" meant the
same thing- "[c]ontinuous being forever" (tr. 2/235-36).

        11. In a 5 January 2005 email to Mr. Stock (SusQTech), Ms. Runkle asked about
the intellectual property language, "[i]n my layman's terms I take this to mean that 'the
second reference of AFNAFPO', encompasses not only AFNAFPO but all DOD NAFs
using IBPS in its current instance" (R4, tab 60 at 227). Mr. Stock replied:

              Your understanding is correct. If Navy NAF engages you,
              and therefore hopefully SusQtech, to build significant new
              functionality into IBPS, and that new functionality is built
              into your instance of IBPS, you are within the terms of this
              agreement. If any NAF organization within DoD wants to
              leverage your instance of IBPS to purchase the products you
              have under contract, you are within the terms of this




                                             5
               agreement. I do not think you are limited to who may use
               your instance of the application, as long as it is your instance.

(Id.) Ms. Runkle explained that AFNAFPO wanted to be sure that other services within
DoD could use the Air Force NAF's instance 3 of IBPS at no cost to them and she was
satisfied with Mr. Stock's response (tr. 2/241).

       12. By Mod. M0015, dated 31January2005, AFNAFPO and SusQTech
incorporated an intellectual property rights clause in the IBPS contract:

               The purpose of this modification is to incorporate the
               following Intellectual Property Rights to the contract for the
               IBPS system.

               AFNAFPO's rights to the IBPS system are hereby limited to
               its employment for the purpose of operating an electronic
               eProcurement system for the AFNAFPO organization.
               AFNAFPO's rights are continuous and non-exclusive.

               All source code used for the development and deployment of
               the IBPS system will be placed in escrow and updated in
               conjunction with the deployment of new software versions.
               In the event Susquehanna Technologies, Inc. ceases
               operation, is acquired or merged, or should AFNAFPO
               choose to either support and build upon the IBPS system
               itself, or engage a third party to provide support and
               enhancements for AFNAFPO, AFNAFPO is granted
               authorization to retrieve all source code from the escrow
               system.

               All deliverables and other materials created by Susquehanna
               Technologies, Inc. in the course of performance of its
               obligations hereunder, including, without limitation, the
               project components, all software object and source code,
               developer tools, and user manuals (collectively the
               "Deliverables"), shall remain the intellectual property of
               Susquehanna Technologies, Inc. Susquehanna Technologies,
               Inc. reserves the right to resell and distribute said intellectual
               property. AFNAFPO shall not sell, transfer or assign
               Deliverables to any third-party, nor will it allow any

3
    "Instance" is synonymous with "version."


                                               6
             third-party to use Deliverables in whole or in part other than
             to support AFNAFPO. AFNAFPO retains the right to allow
             other DoD NAF entities to become users only on the existing
             instance of AFNAFPO IBPS. All rights not hereby
             specifically granted to AFNAFPO shall remain the sole
             property of Susquehanna Technologies, Inc.

(R4, tab 24) No money was placed on the contract by Mod. M0015.

        13. Ms. Runkle wrote Mod. M0015 (tr. 2/247). She testified that Mod. M0015
"was the end result of the two years worth of effort on the language" (tr. 2/248). She
testified that the paragraph starting with "AFNAFPO's rights to the IBPS system" meant,
"[w]e, AFNAFPO, would have the right to continue forever to use the source code for the
operation of our electronic eProcurement System known as IBPS" (tr. 2/248-49).
Ms. Runkle testified that the paragraph starting with "[a]ll source code use for the
development and deployment of the IBPS system" was intended to insure that AFNAFPO
would always have access to the IBPS source code in escrow (tr. 2/249-50).

        14. Ms. Jones is the deputy chief of AFNAFPO (tr. 2/161). From 1999 to 2001
she was IBPS project team lead and from 2001 to 2004 she was branch chief of the
policies and procedures branch that was responsible for IBPS (tr. 2/164-65). In 2004 she
was promoted to deputy director (tr. 2/166). Ms. Jones remained involved in IBPS when
Mod. M0015 was signed (tr. 2/184). Ms. Jones testified that "Mod 15 gave us the right
to use IBPS forever" (tr. 2/193).

        15. In 2005 Mr. Henson was branch chief of the business systems section of
AFNAFPO and he held an unlimited contracting warrant (tr. 3/63-64). He signed
Modification M0022 and in preparation reviewed Modification M0015. Mr. Henson
testified that Mod. MOO 15 addressed three points. The first, in paragraph one, "talks
about the continuous use of IBPS and the rights of AFNAFPO to use that Software."
(Tr. 3/65) The second paragraph "talks about source code and placing it in escrow" (id.).
The third paragraph talks about SusQTech's rights in the software (tr. 3/65-66). He
understood that AFNAFPO "had the right to use it [IBPS] forever and without any
restriction" (tr. 3166, 108).

Asset Purchase Agreement

         16. The record contains a 12 July 2005 email to Mr. Carr, founder and CEO of
DSI (tr. 1/66), and Mr. Tuttle, DSI's senior contracts administrator for most ofDSI's
involvement with AFNAFPO (tr. 2/19), forwarding a draft letter of intent and transmittal
letter, on DSI letterhead, from Mr. Carr to Mr. Brubaker, Acting CEO SusQTech (R4,




                                            7
tab 101). The draft letter documented DSI's interest in purchasing SusQTech's IBPS
software. The draft transmittal letter included the following language:

              The fact that the IP involved in the software is owned both by
              SusQTech and the Government. This places the customer
              (the government) in a very strong negotiating position since
              they can indeed "walk away", greatly reduces any intrinsic
              value of the software and also diminishes the value of the
              contract vehicle.

(R4, tab 101at3199)

        17. On 29 July 2005, DSI and SusQTech entered into an Asset Purchase
Agreement whereby DSI purchased "All right, title and interest" in SusQTech's
intellectual property in IBPS for $50,000 (app. supp. R4, tab 214 at 6336-47; tr. 11119).

Events Leading Up to the Novation

        18. Mr. Carr testified he had no intent to simply step into SusQTech's shoes
(tr. 11129), and ifDSI was to take over the IBPS contract he wanted to "start fresh"
(tr. 11131). He testified that he wanted to know if AFNAFPO had a license to use IBPS
and to that end they looked for the words "term" or "perpetual" or other wording that
would "have given us a clue that there was some, something that would be important to
us" (tr. 1/139). Mr. Carr relied upon Mr. Tuttle to investigate AFNAFPO's usage rights
in IBPS (tr. 1/138-39). Mr. Tuttle did the in-depth review of the contract and Mr. Carr
would look at things Mr. Tuttle brought to his attention (tr. 11200-01, 203-04). Mr. Tuttle
read Mod. MOO 15 and did not see the word "perpetual"; he interpreted the language
"AFNAFPO's rights are continuous and non-exclusive" to be different than "perpetual"
rights. He testified about his interpretation of Mod. M0015, "[b]ecause continuous in my
mind, doesn't mean perpetual. Continuous can mean 7-24, 365, right to use, until the
contract ends. That's a reasonable interpretation." (Tr. 2/31; R4, tab 210) Mr. Tuttle
does not recall discussing Mod. MOO 15 's intellectual property rights with AFNAFPO
(tr. 2/124-25). Mr. Carr recalled:

                     What we found was in essence a bounded contract,
             that pretty much, from my perspective, was a lease
             arrangement, okay, that when it ended, everything ended with
             it, and that's exactly what we wanted. That was good, you
             know, from our perspective.

(Tr. 11139-40)




                                             8
       19. On 6 July 2005, Mr. Doug Miller, SusQTech, sent an email to Mr. Tuttle
with a copy to Mr. Carr. The email included the following:

             AFNAFPO has long held the belief that SusQtech and its
             predecessors owned the IBPS intellectual property.
             Mod 15 was executed at the request ofAFNAFPO to clarify
             their perpetual rights to use the application and ability to
             establish other NAF organization users on the system. Based
             on proximity of several Air Force and Navy bases throughout
             the world, AFNAFPO has expanded the user base of the
             system to include naval installations to enhance purchasing
             efficiency and buying power of both units.

(R4, tab 102 at 1002-03) (Emphasis added) Mr. Carr testified about this email:

             The second sentence puts, I guess, him [Tuttle] on notice that
             Mr. Miller's belief is that Mod 15 was executed to clarify the
             perpetual rights to use the application, and ability for other
             NAP systems.

                    That's Mr. Miller's opinion, and I'm positive Pete
             [Tuttle] would have looked in the language of the mod, and I
             don't believe he would have taken Mr. Miller at his word, nor
             ifthat was the case, it would have simply had bearing to him
             as we negotiated Mod 22. I mean this is strictly, you know,
             Doug's [Miller] opinion of this, and you know, that's what it
             lS.


(Tr. 1/232-33) Concerning "Doug's opinion," Mr. Carr testified that he had no reason "to
believe it or disbelieve it" and it had "no bearing" on DSI's negotiations with AFNAFPO
(tr. 1/233). He testified that what Doug thinks "doesn't matter" (tr. 1/234), and:

                    I mean there's nothing here in terms of what was
             meant by it, you know. If the government had assumed that
             or they wanted that, I mean I assume at any point in time they
             could have brought up the words. I mean I don't know why
             the onus is always, you know, from your perspective seems to
             be on me to have them be informed of every little thing.

(Id.)




                                           9
       20. Mr. Tuttle reviewed the contract between SusQTech and AFNAFPO to
assess risks for Mr. Carr (tr. 2/20-21). He reported the results of his analysis to Mr. Carr
via a 7 July 2005 email that included:

                     c. Intellectual Property. Mod 15 says contractor owns
              it and AFNAFPO is restricted from selling, transferring or
              assigning to a third party. Also limits third party usage.
              HOWEVER, it also says AFNAFPO requires a SIW Escrow
              and the language gives AFNAFPO great discretion in what to
              do with the escrowed SW. An escrow will be required, per
              DM, by the time ofR4 delivery. DSI needs to have this
              escrow language changed and use our existing escrow on
              this deal.

(Tr. 2/22; app. supp. R4, tab 211 at 86) (Italics added) Mr.Tuttle does not think he saw
Mr. Miller's 6 July 2005 email before he sent his analysis to Mr. Carr because he did not
mention the "perpetual rights" to use in the analysis (tr. 2/27, 112). He testified about
Mr. Miller's 6 July 2005 email that included the "perpetual rights" language. Mr. Tuttle
understood that AFNAFPO and SusQTech believed that AFNAFPO's right to use IBPS
extended beyond the term of their contract. (Tr. 2/24) Mr. Tuttle did not recall if he
discussed Mr. Miller's 6 July 2005 email with Mr. Miller (tr. 2/103-04). Mr. Tuttle does
not recall ifhe ever discussed his risk analysis (app. supp. R4, tab 211 at 085-87) with
AFNAFPO even though meeting with AFNAFPO was one of his recommendations to
Mr. Carr (tr. 2/21, 119-20; app. supp. R4, tab 211 at 87).

       21. Mr. Tuttle drafted the novation agreement between DSI and SusQTech that
included the language in paragraph (a)(l):

              The term "the Contract," as used in this Agreement, means
              the above Contract and modifications made between the
              Government and SMC before the effective date of this
              Agreement, and includes Modification MO 1 through M002 l.
              Modifications MOl through M0007, M0009, MOOlO (FY04
              maintenance portion), MOO 11, MOO 15, MOO 19 and M0020
              are complete and accepted by the Government.

(App. supp. R4, tab 214 at 6331) Mr. Tuttle testified that this language "essentially killed
Mod 15" (tr. 2/31 ). He testified that DSI was "absolutely not going to step into
SusQTech's shoes" and that he put limitations in the novation (tr. 2/35). Innovation
paragraph (a)(l) he listed modifications, including Mod. MOOl 5, as "complete and
accepted by the Government" (app. supp. R4, tab 214 at 6331). By that he meant, "[t]hat
there are no further expectations on the part of the Government for anything regarding



                                             10
those mods, including deliverables ... .I was trying to mitigate the open ended nature of
AFNAFPO's understanding of the rights. Meaning, if they thought they had perpetual
rights and it was tied into Mod 15, then that sentence ends those rights. It bounds them."
(Tr. 2/36-37, 131) His intent was to "kill" all of the rights, duties or obligations arising out
of Mod. M0015 (tr. 2/40). However, this intent was not communicated to AFNAFPO.

        22. By email dated 11 August 2005, Mr. Tuttle sent Mr. Henson, AFNAFPO, a
         4
signed version of the novation agreement between SusQTech and DSI (app. supp. R4,
tab 214 at 6331-47). The novation included the language in paragraph (a)(l),
"[m]odifications MOl through M0007, M0009, MOOlO (FY04 maintenance portion),
MOOl 1, M0015, M0019 and M0020 are complete and accepted by the Government"
(R4, tab 214 at 6331). Mr. Tuttle did not recall discussing his draft novation agreement
with AFNAFPO (tr. 2/130; app. supp. R4, tab 214 at 6631-34). Mr. Henson recalls
receiving the 11 August 2005 email from Mr. Tuttle transmitting a draft novation
agreement between DSI and SusQTech (tr. 3/67; app. supp. R4, tab 214 at 6329-34).
The purpose of the draft novation was to replace SusQTech with DSI (tr. 3/67). On
19 August 2005, Mr. Henson sent an email to Ms. Jones, Mr. Sawyer and Ms. Runkle with
an attachment listing concerns about the novation agreement he received from Mr. Tuttle
(tr. 3/68; app. supp. R4, tab 222). The first "concern" listed was:

               (a) 1 MOO 15 Intellectual Property rights for IBPS. That
               source code used for the development and deployment of the
               IBPS system will be place [sic] in escrow and updated in
               conjunction with deployment of new versions. With each
               software update, the code will change. MOO 15 is not
               completed as stated in the subject paragraph. This
               requirement will end only when IBPS is complete with no
               further changes or updates.

(App. supp. R4, tab 222 at 10836) Mr. Henson testified Mod. MOO 15 was not complete
for the purposes of the escrow and AFNAFPO wanted the "requirement to go forward
and not be complete" and "[s]o the duty for the contractor to place code in escrow is what
we are trying to convey here" (tr. 3/69). On cross-examination he explained further,
"[w ]hat I am saying here, if you read the document, it is talking about source code being
placed in escrow and that if you do away with Mod M0015, you are doing away with
escrow deposits. So if you don't - - Mod 0015, if we are still doing development, you
can't stop the requirement for escrow deposits." (Tr. 3/113-14) In reviewing paragraph
(1) of the draft version of the novation sent to Mr. Henson by Mr. Tuttle, Mr. Henson



4
    Although the novation was signed, it was considered a draft by Mr. Henson, Branch
         Chief, AFNAFPO (tr. 3/67).


                                              11
believed that DSI thought that their duties under Mod. MOO 15 had ended and he did not
agree and changed the novation to clarify (tr. 3/104). Mr. Henson testified:

                     The rights we had already established were continuous
              forever. So we didn't - - there was never any question about
              what our rights were under Mod MOO 15.

                     So the only thing that could be complete or completed
              or any duty of the contractor at that point would be the escrow.
              And that is clearly outlined in the notes that we assessed and
              put together and wrote language to try to address.

(Tr. 31105) Mr. Henson recalled that in negotiating the novation, DSI had specific
requests to deal with stop work orders so that the work could be resumed (tr. 3/84).

        23. Ms. Jones received a copy of the draft novation agreement from Mr. Hamer,
DSI (tr. 21186; app. supp. R4, tab 215). She recalled that in discussing the novation the
IBPS team wanted to "lay out what work was left to be done on the contract" (tr. 2/186-87,
196). She did not interpret the novation as an attempt by DSI to "curtail rights and duties
listed under Modification 15" (tr. 2/188). However, at the hearing Ms. Jones was
confronted with the deposition testimony where she testified that AFNAFPO changed the
language referring to Mod. MOO 15 in the draft novation because the IBPS team was
concerned "if they said that was closed that they would be taking away what we had just put
into Mod 15, which gave us the right to use IBPS software" (tr. 2/190). Ms. Jones testified
that "Mod 15 gave us the right to use IBPS forever" (tr. 21193). She testified that the
language in the draft novation that Mod. MOO 15 was "complete and accepted by the
Government" was "one of our major concerns in there because we needed to make sure that
we had the right to get the software if we ever needed the source code" (tr. 2/193-94). She
also testified that they were concerned "[t]hat we would be able to continue to use IBPS"
and "we wanted to continue to be able to go forward and use it forever" (tr. 21195-96).

       24. By email dated 26 August 2005, Mr. Henson sent Mr. Tuttle a revised
version of the novation agreement in FAR format (tr. 3/69-70; app. supp. R4, tab 223).
Paragraph 4 contained revised language written by AFNAFPO:

             4. Modification MOO 15 shall remain in effect but will be
             changed to reflect DSI in lieu of "Susquehanna Technologies".
             This modification is valid for the entire life of the contract and
             will not be considered complete until the contract is closed.

(App. supp. R4, tab 223 at 1921; tr. 3/70-71) Mr. Henson explained the purpose of
paragraph 4, "[a]gain, going back to the concerns that were outlined at the time, my



                                            12
understanding of this language is address those concerns that we had in that last document,
meaning that escrow agreement, having code in escrow. The requirement ofDSI to place
code in escrow." (Tr. 3/71) Mr. Henson testified, "[t]here were never any discussions at
the time regarding our continuous use rights during the negotiation for the drafting of
language associated with Mod M0022" (tr. 3171-72). Mr. Henson testified that he
"[a]bsolutely [did] not" have any intention to limit AFNAFPO's right to use IBPS (tr. 3/72).
DSI never suggested that AFNAFPO would have to pay a fee to use IBPS (tr. 3/73).
Ms. Runkle testified that AFNAFPO never gave up its right to use IBPS (tr. 3/61 ).

        25. Mr. Tuttle recalled that AFNAFPO wanted the novation agreement to be in a
FAR format and sent DSI a copy of the novation agreement in a 26 August 2005 email
(tr. 2/44-46; app. supp. R4, tab 223). He couldn't recall if he discussed the novation with
Mr. Henson (tr. 2/45). Mr. Tuttle testified that his interpretation of paragraph 4 of the
novation agrreement meant at the end of the contract "[i]t was done. No further
expectations." (Tr. 2/47-49) Mr. Tuttle does not recall discussing future right to use or
licensing fees for the IBPS with AFNAFPO when negotiating Modification No. M0022
(tr. 2/134-35). Mr. Tuttle has no recollection of discussing the final novation agreement
with AFNAFPO other than what is in emails in the record5 (tr. 2/136-37).

Modification No. M0022

       26. On 30 September 2005, SusQTech (Transferor), DSI (Transferee), and the
AFNAFPO contracting officer (CO) signed the novation agreement transferring the 0027
contract to DSI (R4, tab 32).

        27. Modification No. M0022 (Mod. M0022), effective date 5 August 2005 and
executed by CO Henson on 4 October 2005, incorporated the novation agreement into the
contract (R4, tab 31; tr. 3/63-64; app. supp. R4, tab 233). The purpose of Mod. M0022
was to incorporate the novation agreement recognizing DSI as the new contractor
(tr. 3/64-65). The modification contained 12 paragraphs listing all prior modifications
and indicating the present status of completion of each and DSI's responsibility, if any,
for each (id. at 105). For example, paragraph 1 stated that "Modifications MOOOl
through M0007, M0009, MOOlO (FY04 maintenance portion), MOOl 1, M0019 are
complete and accepted by the Government." Paragraph 4 dealt with Mod. M0015:

                4. Modification MOO 15 shall remain in effect but will be
                changed to reflect DSI in lieu of "Susquehanna

5
    Mr. Tuttle testified that the documents at app. supp. R4, tabs 226 to 232, reflect his
         negotiations with AFNAFPO concerning Modification M0022 (tr. 2/50-51).
         Nothing in these documents discloses Mr. Tuttle's intent to end AFNAFPO's
         perpetual right to use IBPS.


                                                13
              Technologies". This modification is valid for the entire life
              of the contract and will not be considered complete until the
              contract is closed.

(R4, tab 31 at 105) While no money was obligated by Mod. M0022, it recognized that
DSI was entitled to invoice for unpaid completed work up to and including Mod. M0020
and any "withheld amount or retainage upon the acceptance of R4 [Release 4]"
(R4, tab 31 at 106).

       28. Mr. Carr signed Mod. M0022 for DSI (R4, tab 31 ). Mr. Carr did not
personally negotiate Mod. M0022 with AFNAFPO (tr. 1/287, 304). Mr. Carr testified that
Mr. Tuttle negotiated the terms and conditions of Mod. M0022 with AFNAFPO (tr. 1/147,
154, 213-15 ). Mr. Carr testified that there had been negotiations leading to Mod. M0022:

              In other words, we had gone through the entire contract. We
              had listed and gotten joint agreement as to all of the things
              that we should close down. We had negotiated back and
              forth. We had entertained the government's counterproposals
              and Mod 22 was a clean step forward for us.

(Tr. 11145) Mr. Carr testified about paragraph 4 of Mod. M0022:

              If I look at paragraph four and I read it, this looks like a
              specific negotiation on Mod 15. Again, you would have to
              talk to Mr. Tuttle about, you know, the mechanics of that and
              what went back and forth. It looks to me like this is a
              clarification on Mod 15, that Mod 15 is again is valid for the
              life of the contract, which would mean to be at the end of the
              contract, that it would become closed and done.

(Tr. 11153) Paragraph 12 ofMod. M0022 reads:

              DSI's liabilities and obligations are limited to the
              requirements set forth in this Modification M0022. DSI shall
              have no liability or obligation for any claims and demands
              under contract F 41999-99-C-0027 arising prior to the
              effective date of this modification. This limitation shall not
              apply to any future obligation or liability under said contract
              as modified by Modification M0022.

(R4, tab 31 at 106) Mr. Carr testified that he felt Mr. Tuttle did a good job of wording
paragraph 12 "in terms of clearly limiting the fact that we had no liabilities or obligations



                                             14
of anything in the past" (tr. 11149-50). Mr. Carr understood that AFNAFPO's right to use
IBPS was limited to the duration of the contract by Mod. M0022 (tr. 11155).

        29. Mr. Tuttle does not recall ever telling anyone at AFNAFPO that DSI could not
"live with" AFNAFPO perpetual rights to use IBPS or that the intent of Mod. M0022 was
to "kill" Mod. MOO 15 and end any perpetual rights to use IBPS that AFNAFPO might
have (tr. 2/154-55). He does not recall discussing the future right to use IBPS or licensing
fees for the IBPS with AFNAFPO when negotiating Mod. M0022 (tr. 2/134-35).

Modification No. M0029

       30. Mod. M0029, dated 1 October 2006, extended the period of performance of
contract 0027 to 30 September 2007 and added a maintenance agreement and other
provisions (R4, tab 43 at 152). It included the following:

               9) Intellectual Property Ownership, Right-to-Use and Escrow

               The rights and responsibilities of the Parties in regards to
               intellectual property ownership, right-to-use and escrow in
               Modifications MOO 15 and M0022 remain in full force.

(R4, tab 43 at 153) Mr. Max Browning, Contract Specialist, drafted Mod. M0029 based
on DSI' s request to be allowed to continue performance another year to "stabilize" the
IBPS software (tr. 3/163). Mr. Browning recalled that Mr. Tuttle said, "Max, we are
concerned about you to continue to recognize our rights of ownership and we will
continue to recognize your right to use" (tr. 3/165). Mr. Browning testified that paragraph
9 "didn't alter our rights under Mod MOO 15 and it recognized in Mod M0022" that DSI
owned the software (tr. 3/165).

Amendment 1 to Rider C

       31. Rider C to DSI's escrow agreement allows the escrow agreement to be used
for IBPS without having to negotiate a new one (R4, tab 243 at 9318). Mr. Carr testified
that Rider C to the escrow agreement had nothing to do with ownership or right to use
IBPS (tr. 11180-81). 6

    32. Mr. Browning reviewed Escrow Agreement Rider C and expressed
AFNAFPO's concerns in a 2 August 2006 email to Mr. Tuttle:



6
    In its brief DSI asserts Rider C confirms "AFNAFPO's limited right-to-use IBPS"
           (app. br. at 19).


                                             15
              We have reviewed the attached Escrow Agreement and have
              the following concerns: Clause 3, Beneficiary(s), states only
              active client Beneficiaries holding a current License
              Agreement with a fee paid Depositor shall have the right to
              request release of Deposit Materials (Source Code +). Do we
              have a License Agreement with DSI? There is no provision
              for any notice to us under Clause 4, Term, if this Escrow is
              terminated for any reason. In both Clause 8, Section (e)
              and Clause 12, Section (c), there is language limiting our use
              of Deposit Materials to the terms of a GSA Schedule
              Right-to-Use License and Subscription Agreement. The
              numerous concerns noted herein need to resolved [sic]
              through a revised Rider C to this Escrow Agreement or our
              rights to retrieve the Deposit Materials is imperiled. Let me
              know if you wish to discuss.

(App. supp. R4, tab 243 at 9318) Mr. Browning was concerned that Rider C talked about
a GSA license but AFNAFPO's license rights came from Mod. M0015. He was
concerned about protecting, "[o]ur right to use continuously." (Tr. 3/148-49) He
explained, "we had the right to pull escrow and use continuously free of charge, without
any restrictions, other than what was identified as our rights to protect DSI's intellectual
property and to use it within our own need for our procurement system" (tr. 3/149). He
continued, "we wanted to make sure, undisputed that nothing in that escrow agreement
that had language that would impede us from pulling our escrow and use it as intended,
our right to use forever free, under Mod MOO 15" (tr. 3/150-51 ).

        33. Mr. Browning testified that he discussed AFNAFPO's concerns with
Mr. Tuttle, "I told Mr. Tuttle that he needed to fix this Rider C to make sure that it
reflected our right to use and our ability to pull escrow as intended in Mod MOO 15.
Mr. Tuttle concurred and complied." (Tr. 3/152) On 7 August 2006, Mr. Tuttle emailed
Mr. Browning Amendment 1 to Escrow Rider C stating, "I think it addresses the
concerns that were mentioned (see yellow highlights)" (app. supp. R4, tab 245 at 3657).
Paragraph 2 of the revised Rider C reads, "The Depositor's sole ownership of IBPS and
Beneficiaries Right-to-Use are per AFNAFPO Contract F41999-99-C-0027,
Modification M0015 as modified by Modification M0022" (app. supp. R4, tab 245 at
3663). Mr. Browning was asked about the language "Modification M0015 as modified
by Modification M0022" and testified, "[w ]ell my understanding that if Mod MOO 15
stood on its own, it says Susquehanna has the rights to the ownership. Mod M0022 just
identified the new owner." (Tr. 3/156)




                                             16
Delivery Order No. 1375

        34. In September 2007, AFNAFPO determined that it desired DSI to continue
IBPS maintenance. Rather than extending contract 0027 which expired 30 September
2007, AFNAFPO planned to issue an order against DSI's GSA schedule contract. (R4,
tab 78) The record contains a 20 September 2007 maintenance proposal from DSI that
states in part:

             2 Proposal
            DSI proposes a Firm Fixed Price (FFP) effort to include very
            limited DSI project management and coordination/analysis
            which will allow DSI to place the vast majority of the effort
            on code development, code testing and software builds
            necessary to complete work assignments that will originate
            and be managed by AFNAFPO.
            DSI also proposes that the escrow materials as of 913012007
            will be deposited with the escrow agent.



            8 Escrow Materials
            Since this effort is to be performed under an entirely
            new order, DSI proposes that the parties agree that the
            resultant order includes language that ensures that the
            understandings, agreements, duties and responsibilities of the
            parties in F41999-99-C-0027, Modifications 15, 22, 29 and
            the Rider C of the Escrow Agreement survive the end of
            F41999-99-C-0027 and are carried forward into the new
            order.

            9 Pricing



            [CLIN]
            0001 Technical Support consisting of one                $202,392.00
                 (1) DB-Level VI Customization
                 (SIN 132-32) per month for eight (8) months




                                          17
              0002 Program Management Support consisting of            $2,754.00
                   one ( 1) DB Level II Customization for eight
                   (8) months

              0003 Escrow of Deposit Materials (Open Market)           $2,000.00

(R4, tab 64 at 242, 244)

     35. On 26 September 2007, AFNAFPO issued Delivery Order No. F41999-07-F-1375
(DO 1375) under a GSA schedule contract for:

              [CLIN]
              0001 GLAC 1850000                                   $202,392.00
                   IBPS Technical Support consisting of one
                   ( 1) Level VI Customization per month for
                   eight (8) months
                   See Attached Statement of Work
              0002 GLAC 1850000                                     $2,754.00
                   Program Management Support consisting
                   of one ( 1) Level II Customization for eight
                   (8) months
              0003 GLAC 1850000                                     $2,000.00
                   Escrow deposit

(R4, tab 62) Mr. Browning issued DO 1375 for continued maintenance on the IBPS
software for eight months (tr. 3/169; app. supp. R4, tab 276 at 3297). The total amount of
the Order was $207,146 (id.). Although CLIN 0001 references "See Attached Statement of
Work," DSI received a FAX copy of the Order that apparently did not include the SOW (R4,
tab 66 at 249). There is no statement of work with the copy of the Order at Rule 4, tab 62.

       36. DSI prepared a "Revised" version of DSI's Maintenance Proposal entitled,
"Air Force NAF Purchasing Office Maintenance Proposal (Revised)," dated
26 September 2007 (the same date as Order 1375), but paragraph eight was re-titled and
stated as follows:




                                            18
8 Intellectual Property Rights & Escrow Process



DSI Rights:

DSI is the sole and exclusive owner of IBPS and all
customizations, modifications and updates thereto, including
without limitation, the project components, all software
object and source codes, developer tools, and user manuals
(collectively the "IBPS Intellectual Property"). DSI, as sole
owner of the IBPS Intellectual Property, retains the exclusive
right to re-use, modify, update or otherwise change, modify,
customize and update the IBPS Intellectual Property. DSI
retains all rights in the IBPS Intellectual Property including
but not limited to the right to utilize, resell, license and
distribute the IBPS Intellectual Property, its processes and
technology for purposes and projects unrelated to
AFNAFPO.

AFNAFPO Rights:

During the term of this Agreement, AFNAFPO shall have
nonexclusive right to use IBPS Intellectual Property in the
operation of its electronic eProcurement System. AFNAFPO
shall not sell, transfer or assign of [sic] IBPS Intellectual
Property to a third party, nor will it allow any third party to
use IBPS Intellectual Property in whole or in part other than
to provide support for the AFNAFPO eProcurement System.
AFNAFPO shall have the right to allow other DoD NAF
entities to become users of its eProcurement System subject
to the terms of this agreement including any additional
compensation due to or to become due to DSI. All rights not
hereby specifically granted to AFNAFPO shall remain the
sole property of DSI.

Escrow:

DSI and AFNAFPO agree the two party escrow agreement
entered into between DSI and Escrow Associates dated
February 14, 2005 and the Rider C (Amendment 0001)
entered into between DSI and Escrow Associates dated



                              19
l
                  August 10, 2006 shall remain in full force and effect with
                  respect to this Agreement and all related orders. DSI and
                  AFNAFPO further agree that the Rider C Amendment 0001
                  dated August 10, 2006 will be amended to add the new order
                  number, but in the interim, the heretofore mentioned escrow
                  agreement and Rider C shall remain in effect and shall be
                  deemed to include this order number.

                  AFNAFPO may request a maximum of four (4) escrow
                  deposits be made during the period of performance.

    (R4, tab 68 at 256)

          37. On 28 September 2007, Mr. Tuttle emailed Mr. Browning stating that DO
    1375 did not include a SOW:

                 We are in receipt of order (attached), however it did not
                 reference any of the proposed language regarding IP
                 ownership and the escrow process that we discussed or that
                 was included in our proposal (also attached). The fax we
                 received did not contain the SOW referenced in the order so
                 we were unable to verify whether or not AFNAFPO accepted
                 our proposal and/or included the language required by DSI as
                 part of the follow-on contract/order to transition the IP
                 protections, etc. from the previous contract per our
                 discussion.

                 I've left you a voicemail but want to back it up with this note.
                 The order transmitted via fax to DSI yesterday does not appear
                 to reflect the discussion points or the intent of the parties.

                 Hopefully, this was simply an administrative oversight on the
                 part of AFNAFPO while cutting the order.

                 Please contact me ASAP so we can sort through this today.

    (R4, tab 66 at 249; app. supp. R4, tab 276 at 3294) AFNAFPO responded stating, "We
    are in agreement with your proposal and will be sending an admin mod it [sic]
    incorporate" (R4, tab 66 at 248). Mr. Browning testified that Mr. Tuttle was concerned
    that the parties continued to recognize their respective rights and that there was no
    mention of changing or altering rights (tr. 31177-78).




                                               20
        38. On 1 October 2007, AFNAFPO issued unilateral Modification No. MOOOl
(Mod. MOOO 1) to DO 13 7 5 stating, "The purpose of this modification is to incorporate
the attached Statement of Work (SOW) 'Air Force NAF Purchasing Office Maintenance
Proposal (Revised)['] dated September 26, 2007 to the Delivery Order" (R4, tab 67).
There was no change in the price of the order associated with the modification. The
unilateral modification was signed only by CO Browning. (Id.) Mr. Browning used an
"administrative mod" to add the SOW. He testified that if Mr. Tuttle, "had brought up
to me at any one point during this process that our rights were going to cease or change,
that delivery order would have been retracted and it would have been nullified
immediately." (Tr. 3/179)

        39. Mr. Browning testified about the first sentence in paragraph 8 Intellectual
Property Rights & Escrow Process, AFNAFPO Rights, of the 26 September 2007
maintenance SOW that read, "During the term of this Agreement AFNAFPO shall have
nonexclusive right to use IBPS Intellectual Property in the operation of its electronic
eProcurement System" (app. supp. R4, tab 276 at 3317). Mr. Browning explained that
based on what Mr. Tuttle told him he understood that DSI primarily wanted to "capture
their rights in the new code that was going to be developed and I had no problem with
that" (tr. 4/25). He stated, "[i]fhe [Mr. Tuttle] would have identified any change or
intent of a word, then we would have had a serious discussion about it" (tr. 4/26). As to
the first sentence he testified, "I gave it no weight, you know. I had no reason to know or
predict it had any limitation on our rights." (Tr. 4/27) When asked on cross-
examination, "[t]hat sentence does not provide the right to use the IBPS system
continuously forever as you just testified. Correct?" Mr. Browning replied, "[t]hat's not
my opinion. That's not my interpretation." (Tr. 4/29) He also stated "I did not view this
language as changing our rights" (tr. 4/30). The following exchange occurred during
cross-examination:

                      Q. You viewed the language as consistent with the
              rights to use the IBPS system as you have testified previously?

                      A. I see here AFNAFPO Rights and I go back to Mod
              15 as modified as Mod 22 and the language in the escrow
              agreement that gives me the rights to pull at no cost without
              limitation, without an end date as the governing factors in my
              decision here. No indication, no discussion was ever
              conducted of altering our rights under Mod 15 as modified by
              22 which gave you your rights, or DSI's rights, to the
              intellectual property.

                    The sole purpose of me allowing them to put this in
             there so they could continue to capture their rights on any



                                            21
              new code that was developed beyond 30 September. At the
              end of the eight months whatever code was developed, the
              intention was that DSI would continue to own that since they
              developed it and we had no objections to your ownership to
              that property thereafter.

(Tr. 4/30-31) When asked ifhe discussed the first sentence with Mr. Tuttle,
Mr. Browning answered, "[t]here was no reason to discuss it. He never brought it up."
(Tr. 4/32)

        40. Mr. Browning was asked, "Did Mr. Tuttle or anybody else at DSI tell you
that the sentence 'During the term of this agreement AFNAFPO shall have non-exclusive
right to use IBPS intellectual property in the operation of its electronic eProcurement
System,' would result in the loss of your right to use when that delivery order
terminated?" He responded, "Absolutely not." (Tr. 4/44-45)

The Claim and Appeal

       41. On 28 April 2009, DSI submitted an invoice in the amount of$5,432,388.00
to AFNAFPO for two years of "Right to Use License" fees for IBPS 7 software (R4,
tabs 69, 70).

       42. On 10 June 2009, AFNAFPO returned DSI's invoice "without action" stating
that "AFNAFPO enjoys continuous and ongoing rights to use the IBPS software, as
evidenced by the escrow provisions which authorized AFNAFPO to retrieve the
software's source code for use in furtherance of AFNAFPO purposes" (R4, tab 71).

       43. On 15 June 2009, DSI responded to AFNAFPO's 10 June 2009 response to
DSI's invoice (R4, tab 72). DSI took the position that AFNAFPO's right to use IBPS
software license free existed only so long as AFNAFPO maintained a valid contract with
DSI (id.).

       44. On 26 January 2010, DSI submitted a certified claim to AFNAFPO,
referencing Contract 0027, including an invoice for $8,148,582.00 for three years of
"Right to Use License" 8 (R4, tabs 51, 52).

      45. On 18 March 2010, the AFNAFPO responded to DSI's claim stating in part:

7
  The invoice refers to "ProTrac Right to Use License" that is on the GSA schedule, but it
       is clear in the "NOTES AND ASSUMPTIONS" that the invoice is for the use of
       IBPS software.
8
  The invoice uses the "ProTrac Right to Use License" rate from DSI's GSA schedule.


                                            22
             The IBPS Software solution at issue was developed for
             AFNAFPO by DSI's predecessor in interest (Judd's Online)
             in accordance with the subject nonappropriated fund contract
             [contract 0027], awarded in August 1999. Contract
             Modification 15 (which was entered into by Susquehanna
             Technologies, another predecessor in interest of DSI)
             incorporated specified Intellectual Property Rights.
             AFNAFPO was expressly afforded the "continuous and
             non-exclusive" right to employ the IBPS solution to operate
             an electronic eProcurement system for the AFNAFPO
             organization. Moreover, Modification 15 required that all
             source code used for the development and deployment of the
             IPBS system be placed in escrow. AFNAFPO was granted
             broad authority to retrieve the source code from escrow.
             Specifically AFNAFPO could retrieve all source code from
             escrow in the event that it should "choose to either support
             and build upon the IBPS system itself, or engage a third party
             to provide support and enhancements for AFNAFPO."
             AFNAFPO's continuous rights also permitted the selling,
             transferring and assigning of software deliverables (including
             object and source code and developer tools) to any third party
             to use in support of AFNAFPO activities only.

             DSI became Susquehanna's successor in interest via a
             novation agreement recognized in Modification 22. Per the
             novation agreement, DSI was bound by the terms and
             conditions of Susquehanna's contract.

(R4, tab 53) CO Browning found that DSI's claim "does not seek relief arising under the
subject contract, the claim is hereby dismissed" (id.).

      46. On 16 June 2010, DSI filed its appeal with the Board and the appeal was
docketed as ASBCA No. 57266. The parties filed cross-motions for summary judgment.

       47. On 28 December 2011, the Board issued a decision denying DSI's motion for
summary judgment and granting in part AFNAFPO's motion for summary judgment.
DSI, 12-1 BCA ii 34,917. On 14 September 2012, the Board granted DSI's motion for
reconsideration and vacated its 28 December 2011 decision and denied all motions.
DSI, 12-1 BCA ii 35,144. A hearing was held 4-7 June 2013.




                                           23
                                            DECISION

    The Parties

           AFNAFPO awarded Contract 0027 to Judd's on 19 August 1999 (finding 5). By
    novation, Judd's then transferred the contract to SMC Interactive, Inc., who then changed
    its name to SMC/BlazeNet and then to SMC/SusQTech (findings 7, 8). SusQTech, by
    novation dated 30 September 2005, transferred the contract to DSI (finding 26). The
    claim was submitted by DSI. We have jurisdiction to consider this claim and appeal
    pursuant to the Disputes clause of Contract 0027. (R4, tab 1 at 13 )9

    Contention of the Parties

           DSI argues that AFNAFPO does not have perpetual right to use the IBPS for free.
    It contends that if AFNAFPO ever had such rights, they were extinguished by
    Mod. M0022, Mod. M0029 and DO 1375. It is undisputed by the parties that DSI owns
    the IBPS intellectual property. Therefore, according to DSI, AFNAFPO must pay it a
    license fee to continue using IBPS.

           AFNAFPO argues that by Mod. MOO 15 the then parties to the contract, SusQTech
    and AFNAFPO, agreed that SusQTech owned the IBPS intellectual property and
    AFNAFPO enjoyed a perpetual right to use its version of IBPS for the purpose of
    operating its electronic eProcurement system for free. AFNAFPO contends that nothing
    that occurred after DSI took over the contract divested it of its perpetual right to use its
    version of IBPS for free.

    Mod. M0015

            At award, Contract 0027 did not include a provision defining the intellectual
    property rights of the parties. In Mod. M0015 the parties, SusQTech and AFNAFPO,
    defined their intellectual property rights in IBPS. The first version of the language,
    drafted by SusQTech, provided that "AFNAFPO retains a perpetual nonexclusive license
    to utilize the IBPS system for the purpose of operating an electronic eProcurement
    system within the AFNAFPO organization." (Finding 9) AFNAFPO had the language
    changed to "AFNAFPO's rights are continuous and nonexclusive" due to concerns over
    use of the word "license" but felt the new language afforded AFNAFPO the same rights

    9
        At DSI's request, we vacated our decision granting partial summary judgment to
            AFNAFPO to allow DSI time to discover evidence to support its argument that it
            negotiated with AFNAFPO and AFNAFPO understood and agreed to ending its
            perpetual right to use IBPS, a meeting of the minds so to speak. The record
            reveals that DSI was unsuccessful in that endeavor.


                                                 24


I
as the initial language (finding 10). Before signing Mod. M0015, AFNAFPO verified
that it had unlimited rights to use IBPS within DoD (finding 11).

       AFNAFPO individuals primarily involved in negotiating Mod. MOO 15,
Ms. Runkle, Ms. Jones, and Mr. Henson, each testified that Mod. MOO 15 provided
AFNAFPO the right to use IBPS "forever" at no cost for the purpose of operating an
electronic eProcurement system (findings 13, 14, 15). SusQTech likewise agreed that
AFNAFPO enjoyed a perpetual right to use IBPS at no additional cost (findings 9, 11).

       Since both parties to Modification MOO 15 agree that it bestowed on AFNAFPO a
perpetual right to use IBPS, we hold that AFNAFPO enjoyed a perpetual right to use its
version of IBPS for free.

Asset Purchase Agreement

        On 29 July 2005, DSI purchased the IBPS intellectual property from SusQTech.
(finding 17). During the negotiations over price leading up to the purchase, DSI apparently
believed that both SusQTech and the "government" owned the IBPS intellectual property
and that as a result the "government" could "walk away" from the contract (finding 16).
DSI therefore understood, before it took over the contract, that AFNAFPO had significant
rights in IBPS even though DSI was mistaken in believing AFNAFPO co-owned the IBPS
intellectual property. This understanding, although mistaken, should have alerted DSI that
AFNAFPO would protect its substantial interest in IBPS.

The Novation

       Mr. Carr decided to take over Contract 0027 from SusQTech, but he did not want to
"step into SusQTech's shoes" (finding 18). Mr. Carr relied upon Mr. Tuttle to review the
contract and bring things of interest to his attention (id.). Mr. Carr was interested in what
rights AFNAFPO had to use IBPS (id.). Mr. Carr testified that they would look for words
such as "term" or "perpetual" to determine AFNAFPO's license rights (id.). Mr. Carr
recalled that Mr. Tuttle found that AFNAFPO's rights were "bounded" and that was good
from his perspective (id.). Mr. Tuttle testified that he did not interpret the language of
Mod. M0015, "AFNAFPO's rights are continuous and nonexclusive," to be the same as
"perpetual rights" (finding 21). We consider DSI's willingness to interpret Mod. M0015, a
modification DSI had nothing to do with, without inquiring from either SusQTech or
AFNAFPO as to its meaning, to be unreasonable. DSI assumed the risk that its unilateral
interpretation was wrong - which it was.

       By a 6 July 2005 email, Mr. Miller, SusQTech, informed Mr. Carr and Mr. Tuttle
that AFNAFPO requested Mod. MOO 15 "to clarify their perpetual rights to use the
application" (finding 19). Surprisingly, after having seeing the words "perpetual rights,"



                                            25
the "clue" Mr. Carr was looking for, Mr. Carr dismissed Mr. Miller's email referring to it
as his "opinion" and that it "doesn't matter" (id.). This testimony is irreconcilable with
Mr. Carr's stated interest in AFNAFPO's rights to use IBPS and DSI's search for the word
"perpetual" in that regard. Inexplicably, Mr. Carr preferred to rely on his and Mr. Tuttle's
interpretation of Mod. M0015 rather than an interpretation from one of the parties that
actually negotiated and signed the modification. He seemed to believe that DSI had no
reason to tell AFNAFPO it was attempting to end AFNAFPO's perpetual rights to use
IBPS, "I mean I don't know why the onus is always, you know, from your perspective
seems to be on me to have them be informed of every little thing." (Finding 19) We do
not consider AFNAFPO's perpetual rights to use IBPS and DSI's professed attempt to end
those rights to be, in Mr. Carr's vernacular, a "little thing."

       Based on the above, we conclude that on or about 6 July 2005, Mr. Carr and
Mr. Tuttle were on notice that Mod. MOO 15 gave AFNAFPO perpetual rights to use the
IBPS for free. 10 On 7 July 2005, Mr. Tuttle reported to Mr. Carr that AFNAFPO had
"great discretion" to use escrowed software and advised that DSI should change the
escrow language 11 (finding 20). Armed with this knowledge, Mr. Tuttle wrote the
language stating that Mod. MOO 15 was "complete and accepted by the Government" in
the draft novation specifically to "kill" AFNAFPO's perpetual rights to use IBPS
(finding 21). Mr. Tuttle, however, never informed AFNAFPO that DSI intended this
language to end AFNAFPO's perpetual right to use IBPS (findings 21, 22, 25).

        Even though Mr. Tuttle did not disclose his intent to "kill" AFNAFPO's perpetual
right to use IBPS, there was concern at AFNAFPO over the language of the draft
novation. The main concern was that the escrow requirement could not end until
software development concluded. (Findings 22-24) Ms. Jones also expressed her

10
     In its briefDSI acknowledges that it understood that "both AFNAFPO and SusQTech
           seemed to believe that the language of Modification 15 granted a perpetual right to
           use the current IBPS system" (app. br. at 37-38). DSI then argues, "[a]s a result,
           DSI clearly and unequivocally proposed the end to all rights and duties stated in
           Modification 15 by proposing that it be complete and accepted by the government
           before DSI stepped into the IBPS Contract" (app. br. at 38). If this were true,
           DSI might prevail - but it is not true. The language of paragraph 4 of
           Mod. M0022, "complete and accepted," is far from a clear and unequivocal
           statement communicating to AFNAFPO DSI's intent to divest AFNAFPO of its
           perpetual right to use IBPS. It is clear from the record that AFNAFPO did not
           know what DSI intended nor would it have ever agreed to give up its perpetual
           right to use IBPS. (Findings 22-24, 30, 32, 33, 37-40)
11
     Mr. Tuttle testified that he must not have seen Mr. Miller's 6 July 2005 email when he
           reported his analysis to Mr. Carr because he did not refer to "perpetual rights"
           (finding 20).


                                               26
concern over AFNAFPO's ability to use the IBPS "forever" (finding 23). AFNAFPO
revised the novation to satisfy these concerns, comply with FAR format and clarify the
requirement to continue to place code in escrow (finding 24) Ms. Runkle, Mr. Henson,
and Ms. Jones each testified credibly that AFNAFPO did not give up its right to use IBPS
(findings 22, 23, 24). Mr. Tuttle, however, interpreted the new language to have the
same effect as his language and end AFNAFPO's perpetual right to use IBPS at the end
of Contract 0027 (finding 25). Mr. Tuttle did not disclose his interpretation to
AFNAFPO (id.). The second, FAR formatted version, of the novation was signed on
30 September 2005 (finding 26).

Mod.M0022

        Mod. M0022, effective date 5 August 2005, incorporated the novation agreement
into Contract 0027 (finding 27). It repeated the novation language that Mod. M0015 "is
valid for the entire life of the contract and will not be considered complete until the
contract is closed" (id.). Mr. Carr testified that paragraph 4 clarified Mod. MOO 15 and it
would be "closed and done" at the end of contract 0027 (finding 28). He likewise
testified about paragraph 12. Although Mr. Carr signed Modification M0022, we give
little weight to Mr. Carr's testimony because he was not involved in the negotiations and
never conveyed his interpretation to AFNAFPO. Mr. Tuttle, who actually negotiated
Mod. M0022, also did not disclose to AFNAFPO his intent that Mod. M0022 "kill"
AFNAFPO's perpetual right to use IBPS. (Finding 29)

        We are dubious that the phrase "[t]his modification is valid for the entire life of
the contract and will not be considered complete until the contract is closed" can
reasonably be interpreted on its face to divest AFNAFPO of its perpetual right to use
IBPS, a right, according to DSI' s claim, worth tens of millions of dollars over time. DSI,
on notice that AFNAFPO had a perpetual right to use IBPS for free, endeavored to divest
AFNAFPO of that right through the language of the novation and Mod. M0022 without
disclosing its intention and interpretation to AFNAFPO. It now asks the Board to enforce
its undisclosed interpretation and divest AFNAFPO of its perpetual right to use IBPS -
this we will not do. It is well established that an undisclosed intent/interpretation is
irrelevant in interpreting contract language. Andersen Consulting v. United States
& Computer Sciences Corp., 959 F.2d 929, 934 (Fed. Cir. 1992) ("[T]he 'subjective
unexpressed intent of one of the parties' to a contract is irrelevant."); ITT Arctic Services,
Inc. v. United States, 524 F.2d 680, 684 (Ct. Cl. 1975) (In attempting to give effect to the
contracting parties' intent, the court will not consider the "subjective unexpressed intent
of one of the parties."). 12

12
     In its briefDSI argued that AFNAFPO failed to disclose its interpretation that
           paragraph 4 of Mod. M0022 only affected the escrow requirements (app. br. at
           39-40), however, the dispute relates to DSI's interpretation that paragraph


                                             27
        Mr. Carr and Mr. Tuttle never "put their cards on the table" and explained to
AFNAFPO that the only way DSI would take over the contract was if AFNAFPO gave
up its perpetual rights to use IBPS. This entire dispute could have been avoided ifDSI
had simply clearly disclosed to AFNAFPO what it wanted.

Mod.M0029

       Mod. M0029 included language similar to what we have seen before in
Mod. M0022 (finding 30). We do not interpret this language to unambiguously state that
AFNAFPO loses its perpetual right to use IBPS. DSI's true intent remained undisclosed.
(Id.) Mr. Browning testified that Mod. M0029's language, "[t]he rights and responsibilities
of the Parties in regards to intellectual property ownership, right-to-use and escrow in
Modifications M0015 and M0022 remain in full force" did not "alter our rights." We
agree. As stated above, DSI's subjective unexpressed interpretation is irrelevant.

Rider C

      We agree with Mr. Carr that Rider Chas nothing to do with AFNAFPO's right to
use IBPS (finding 31). However since in its brief DSI contends Rider C supports its
arguments, we briefly deal with it (id.).

       Mr. Browning reviewed Rider C and expressed concerns (finding 32). He testified
that he told Mr. Tuttle to "fix this Rider C to make sure that it reflected our right to use and
our ability to pull escrow as intended in Mod MOO 15" and that Mr. Tuttle "concurred and
complied" (finding 33). Mr. Tuttle emailed Amendment I to Rider C to Mr. Browning
stating he thought he had addressed Mr. Browning's concerns (id.). DSI again relies on the
language, "Modification M0015 as modified by Modification M0022" as support for its
interpretation; we have already determined that this language does not unambiguously
communicate to AFNAFPO that it lost its perpetual right to use IBPS and DSI's intent
remained undisclosed. Mr. Browning was asked about the language and testified "Mod
M0015 stood on its own" and "Mod M0022just identified the new owner." (Id.) We
conclude there is nothing in Rider C that supports DSI's position.

DO 1375

       We must also consider the interpretation of the language in Mod. MOOOl to DO 1375.
The original 20 September 2007 Statement of Work (SOW) for the maintenance effort
included paragraph "8 Escrow Materials" that recited "[m]odifications 15, 22, 29 and the


       4 divests AFNAFPO of its perpetual right to use IBPS, an interpretation that was
       never disclosed to AFNAFPO.


                                             28
Rider C of the Escrow Agreement survive the end ofF41999-99-C-0027 and are carried
forward into the new order" (finding 34). DO 1375 was issued on 26 September 2007 in the
amount of $207, 146 to provide an additional eight months of technical support; program
management support and to pay for escrow deposits according to the original SOW (finding
35). Also on 26 September 2007, DSI revised its maintenance proposal SOW rewriting
paragraph eight and changing the name from "Escrow Materials" to "Intellectual Property
Rights & Escrow Process" (findings 34, 36). The new version of paragraph 8 included a
subparagraph entitled "AFNAFPO Rights" that included the language, "[ d]uring the term of
this Agreement, AFNAFPO shall have nonexclusive right to use IBPS Intellectual Property
in the operation of its electronic eProcurement System" (finding 36).

        On 28 September 2007, DSI emailed AFNAFPO stating that it had received a fax
copy of DO 1375 that did not contain a copy of the SOW (finding 37). DSI stated that it
was "unable to verify whether or not AFNAFPO accepted our proposal and/or included
the language required by DSI as part of the follow-on contract/order to transition the IP
protections, etc. from the previous contract per our discussion." DSI also stated, "[t]he
order transmitted via fax to DSI yesterday does not appear to reflect the discussion points
or the intent of the parties." (Id.) AFNAFPO responded to DSI's 28 September 2007
email on the same day stating "[w ]e are in agreement with your proposal and will be
sending an admin mod it [sic] incorporate" (id.). On 1 October 2007, AFNAFPO issued
unilateral administrative Mod. MOOOl to DO 1375 incorporating the 26 September 2007
revised SOW (finding 38). It is the language of the 26 September 2007 revised SOW that
DSI relies upon to support its argument that AFNAFPO's perpetual rights to use IBPS
ended when DO 13 7 5 ended.

        DSI's reliance is misplaced. That AFNAFPO's rights were to be maintained
"during the term of the agreement," says nothing about the status of those rights
thereafter. Given the importance of this matter and the potential monetary impact
involved, if DSI intended that AFNAFPO's perpetual rights be terminated at the
expiration of DO 1375, it should have used such language. It did not do so.
Mr. Browning understood that the purpose of the SOW was to ensure that DSI had
ownership to any new software developed during the performance of DO 1375, "[t]he
sole purpose of me allowing them to put this in there so they could continue to capture
their rights on any new code that was developed beyond 30 September (finding 39). He
testified that if he had any indication that DSI was trying to end AFNAFPO's perpetual
rights to use IBPS he would have "retracted" and "nullified" DO 1375 (finding 38).
Based on the same case law we cited above, DSI's undisclosed interpretation that the
language of Mod. MOOO 1 divested AFNAFPO of its perpetual rights is irrelevant and will
not be considered. We conclude that Mod. MOOO 1 to Order 13 7 5 did not serve to divest
AFNAFPO of its perpetual right to use IBPS.




                                            29
                                     CONCLUSION

       Throughout the entire course of its contracts with AFNAFPO, DSI failed to
disclose that DSI's interpretation of the language in the modifications was that it divested
AFNAFPO of its perpetual right to use IBPS. The record is devoid of any evidence that
AFNAFPO either knew ofDSI's interpretation or would have agreed to it if it had. DSI's
appeal is denied.

       Dated: 4 August 2014




I concur                                          I concur




A~~~~
MARK N. STEMPLER
Administrative Judge                             Administrative Judge
Acting Chairman                                  Acting Vice Chairman
Armed Services Board                             Armed Services Board
of Contract Appeals                              of Contract Appeals


       I certify that the foregoing is a true copy of the Opinion and Decision of the
Armed Services Board of Contract Appeals in ASBCA No. 57266, Appeal of Distributed
Solutions, Inc., rendered in conformance with the Board's Charter.

       Dated:



                                                 JEFFREY D. GARDIN
                                                 Recorder, Armed Services
                                                 Board of Contract Appeals




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