Propellex Corporation v. Brownlee

Propellex Corporation (plaintiff) entered into fixed-price contracts with the Department of the Army (Army) (defendant) to produce gun primers, which are the explosive devices inside gun shells. A critical component of gun primers is black powder, which must meet strict moisture-content standards. Propellex was required to submit sample primers from each production lot to the Army for moisture-content testing before the Army would accept delivery. The Army rejected several samples for excessive moisture. Propellex then conducted an internal investigation to determine the cause of the alleged excessive moisture. Propellex kept detailed records of the tests and investigation, but did not keep cost records. Propellex’s investigation did not find any excessive moisture. The Army then analyzed its own testing methods and found defects, meaning that Propellex’s samples were improperly rejected. The Army ultimately accepted all of Propellex’s previously rejected samples and production lots. Propellex filed a $1.7 million equitable-adjustment claim with the Army’s contracting officer (CO) using the modified total cost method. The CO found that Propellex provided insufficient data to support its claim and granted only a small fraction of the claimed amounts. Propellex appealed to the Armed Services Board of Contract Appeals (Board). The Board affirmed the CO’s decision, holding that Propellex failed to fulfill the requirements for a modified total cost method equitable-adjustment claim because Propellex failed to prove the impracticability of establishing its actual losses and Propellex’s lack of responsibility for the additional costs. Propellex appealed to the Federal Circuit.