Software manufacturers that provide commercial software to the government via pre-approved intermediary software vendors on the General Services Administration (GSA) Federal Supply Schedule (FSS) do not contract directly with the federal government. Due to this lack of privity of contract with the government, such software manufacturers are unable to bring direct contract claims against the government under the Contract Disputes Act (CDA). Since the software manufacturers’ end-user licensing agreement (EULA) is typically incorporated into the government contract and dictates the government’s use of the commercial software – the government’s violation of the EULA is considered a non-frivolous cause of action for a breach of contract claim. However, the Civilian Board of Contract Appeals (CBCA) refused to recognize the right of software manufacturers in such situations to bring a direct CDA claim when the intermediary GSA FSS software vendor does not sponsor their claim against the government.

In the underlying claim at issue, the software manufacturer had alleged that end users at the Food and Drug Administration (FDA) violated its EULA in 2015. The claim was not sponsored by the GSA FSS software vendor. The software manufacturer alleged that as part of FAR Part 12 acquisition of software licenses, FDA end users owed it a freestanding obligation, as they had “clicked” a box representing their agreement to the terms of the EULA. According to the software manufacturer, this freestanding obligation owed by FDA end users, created a privity of contract between the software manufacturer and the FDA. Meanwhile, the GSA and the FDA did not deny the software manufacturer’s allegations concerning the specific acts of the FDA end users leading to the alleged violations of the EULA. However, the agencies generally denied violating any legal obligations to the software manufacturer citing a lack of privity between the government and the software manufacturer, and the GSA FSS software vendor’s lack of sponsorship of the software manufacturer’s claim. The software manufacturer’s January 2019 appeal at the CBCA was dismissed by the Board for a lack of jurisdiction. The software manufacturer appealed the CBCA’s dismissal at the Federal Circuit. In March 2024, the Federal Circuit in Avue Technologies Corp. v. Secretary of Health & Human Services, 96 F.4th 1340 (Fed. Cir. 2024) (covered here) vacated and remanded for the CBCA to consider as a merits issue, whether the software manufacturer was a party to – or otherwise had enforceable rights pursuant to the “procurement contract” – defined by the Federal Circuit as the software manufacturer’s EULA in addition to the underlying GSA FSS or task order contract.

In the most recent decision issued on July 1, 2024, the CBCA began its analysis by acknowledging the applicability of the “mandate rule” according to which the Board could not consider any issues already decided by the Federal Circuit. In accordance with the rule, the Board’s decision was primarily limited to a discussion of issues explicitly remanded by the Federal Circuit. In rejecting the agencies’ arguments that the EULA was not a contract at all, the CBCA agreed with the software manufacturer that the EULA was “contractual” at least for the purposes of summary judgment. In determining the EULA to be “contractual,” the CBCA also noted that it was of little consequence for the purposes of this determination, that the terms of the licensing agreement were not negotiated by the contracting officer (CO) or even known to the FDA end users until the software had been acquired and delivered. Consequently, the CBCA ruled that not only was the EULA “contractual,” but it was also binding upon the government. However, despite this ruling, the CBCA concluded that the EULA was not a “procurement contract” for the purposes of CDA litigation. Here, the Board agreed with the agencies that no government officials possessing the requisite authority, such as the CO, took any actions that would indicate that the government entered into a “procurement contract” with the software manufacturer.

In reiterating that the EULA, standing alone, lacked core aspects of a CDA “procurement contract,” the CBCA clarified that since the EULA was incorporated into the pre-approved software vendor’s procurement contract(s), the software manufacturer was a “licensor” (as opposed to a contractor) that conferred upon the government, conditional permission to use its software. Meanwhile, the pre-approved software vendor was the “contractor” that arranged for the software license to be procured by the agencies via its FSS contract. The CBCA ruled that the software manufacturer was not the “contractor” because neither GSA, nor the FDA paid the software manufacturer directly, and the government did not procure the software’s use license from the software manufacturer. Therefore, the Government’s receipt of the software license, standing alone, was not an acquisition of property or services, and the EULA was not a “procurement contract” that could sustain CDA claims litigation on its own. In refusing to exercise jurisdiction, the Board also compared the “contractual” and legally binding EULA to a suretyship arrangement which was previously brought before the Board. In that case, the Board had refused to exercise jurisdiction because the suretyship arrangement, while legally binding, was not a “procurement contract” subject to the CDA.

Regarding the issue of whether any enforceable CDA rights originated from the “contractual” and legally binding EULA, the CBCA understood the Federal Circuit’s instructions as requiring it to determine, on the merits, whether the software manufacturer had any enforceable rights under either the software vendor’s underlying FSS contract or the FSS task order – both of which were “procurement contracts” in which the legally binding EULA was incorporated. The CBCA ruled that the software manufacturer did not have any enforceable CDA rights under the software vendor’s GSA FSS or task order contract. Therefore, the CBCA also reiterated its rejection of the software manufacturer’s earlier argument that the CBCA should exercise CDA jurisdiction over its appeals because the software manufacturer’s EULA was “related to” the software vendor’s underlying FSS contract. The CBCA also rejected the notion that privity of contract could exist between the software manufacturer and the government based upon the conduct of the parties, which indicated a “contractual” relationship despite the tiered nature of the contracting scheme. In dismissing the appeals for a lack of jurisdiction, the CBCA stated that it was not aware of any adjudicative forum that had previously held that a party other than the prime contractor could establish CDA jurisdiction by relying on a separate agreement that relates to a CDA procurement contract. The CBCA made it clear that it would not be the first to do so.

Finally, the Board interpreted the clause added to GSA FSS contracts via a July 2015 class deviation (which permits software manufactures to bring breach of contract actions against procuring agencies), as applicable to the present contract. However, while applicable, the GSA clause was not sufficient to grant the Board jurisdiction in this case. According to the Board, the clause only permitted a software manufacturer to pursue its contractual rights under an FSS incorporated EULA, if it could establish the pre-existence of CDA jurisdiction, independent of the government’s breach of the EULA. The CBCA explained that CDA jurisdiction could not be expanded by regulation to confer jurisdiction where it did not otherwise exist. Therefore, the GSA clause added via the July 2015 class deviation could not be interpreted as permitting software “licensors” to assert direct claims against the government. Instead, the Board opined that a natural reading of that GSA clause indicated that the clause only permitted pass-through claims by software manufactures as subcontractors to their pre-approved GSA FSS vendors.

While the CBCA agreed with the software manufacturer that its EULA was “contractual” and binding upon the government agencies that used its software, it reiterated that the EULA, standing alone, was not a “procurement contract” that would allow the software manufacturer to bring a CDA claim against the government without the GSA FSS software vendor’s sponsorship. Additionally, the CBCA ruled that the software manufacturer did not have any enforceable rights under the CDA in the pre-approved software vendor’s GSA FSS or task order contracts. Notably, the CBCA also determined that the GSA clause added via the 2015 class deviation could not expand CDA jurisdiction to encompass claims by software manufacturers that indirectly sell commercial software to the government via pre-approved GSA FSS software vendors. Therefore, such software manufacturers would need to bring any breach of contract actions alleging the government’s violation of their EULA as traditional pass-through claims in most situations.

This Federal Contract Claims Insight is provided as a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or Contact Us to determine how the law would apply in a specific situation.