author: MOORE, Circuit Judge.

text:
    AGILITY DEFENSE & GOVERNMENT SERVICES, INC., Plaintiff-Appellant v. UNITED STATES, Defendant-Appellee
    2016-1068
    United States Court of Appeals, Federal Circuit.
    Decided: February 6, 2017

      Walter BRAD English, Maynard, Cooper & Gale, P.C., Huntsville, AL, argued for plaintiff-appellant. Also represented by Emily J. Chanoey, Jon Davidson Levin, John Andrew Watson, III.
    Michael Duane Austin, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by Benjamin C. Mizer, Robert E. Kirschman, Jr., Kenneth M. Dintzer.
    Before MOORE, WALLACH, and TARANTO, Circuit Judges.
   MOORE, Circuit Judge.

Agility Defense (“Agility”) appeals from the Court of Federal Claims (“Claims Court”)’s denial of its claim for an equitable adjustment arising out of its fixed price indefinite delivery contract with the Defense Logistics Agency (“DLA”)’s Defense Reutilization and Marketing Service (“DRMS”). For the reasons discussed below, we reverse and remand.

Background

DLA is an agency of the United States Department of Defense that provides supplies for the military. DRMS is a primary level field activity of DLA that disposes of surplus military property at Defense Reu-tilization and Marketing Offices (“DRMOs”) after the military departs an area of operations. Property that cannot be reutilized is demilitarized and/or reduced to scrap. Property reduced to scrap can be sold on the market.

Historically, the government operated all DRMOs, but in 2006, DLA’s Director determined that DRMS could not sustain its workload unless it brought in outside contractors. DRMS issued a Request for Proposal (“RFP”) in January 2007. The RFP sought performance of DRMO activities for up to five years. Three offerors responded to DRMS’s RFP.

During solicitation, DRMS issued several amendments relevant to anticipated workload and costs. In Amendment 002 on February 26, 2007, in response to a request for “workload history and projection by category and location,” DRMS stated: “Workload history and current inventory levels can be found at http://www.drms.dla. mil/newproc/index.html and link to ‘DRMS Information for Southwest/Central Asia.’ Additional workload data will be provided via amendment. The Government does not have workload projections.” J.A. 810. The referenced website showed DRMS’s historical workload by line item and scrap weight. Line items are the number of military property items received at each DRMO for processing. Scrap weight is the amount of scrap processed at each DRMO. DRMS updated its website approximately biweekly to reflect the line items received, scrap weight, and scrap sales during the prior weeks.

In Amendment 004 on June 20, 2007, DRMS responded to a request for an estimate on workload, stating this time, “[w]e anticipate an increase in property turn-ins.” J.A. 945. Amendment 004 added clause H.19, titled “DRMO Workload Changes,” which contemplated that “the contractor may experience significant workload increases or decreases” and outlined a process for the contractor to “renegotiate the price” if workload increased. J.A. 836-37. As originally drafted, to warrant a pricing adjustment under clause H.19, the contractor had to experience an increased workload 150% above the workload it experienced the previous three months. Amendment 004 also added that the contractor to whom the contract is awarded may sell any scrap, and the contractor “is entitled to all sales proceeds” from the scrap sales to “offset some of the costs incurred in performing this contract.” J.A. 893-94.

On July 24, 2007, DRMS issued Amendment 007. In response to an offeror’s request for an estimate of scrap sales, DRMS directed offerors to an attachment projecting scrap quantities for the duration of the contract (hereinafter, the “Amendment 007 Chart”). The Amendment 007 Chart projected a stable workload for the first two years and then “workload declines” for option years three through five, down 75%, 50%, and 30%, respectively. ' J.A. 990-91. With Amendment 007, DRMS specified that contractors would keep their scrap proceeds “without any type of reduction in payments,” asking contractors to describe their anticipated proceeds “to demonstrate the Government received consideration for providing the scrap.” J.A. 1010-11.

Agility submitted its initial proposal on August 2, 2007, reflecting a $20,342,608 offset for expected scrap revenues during the life of the contract. After receiving final proposed revisions from Agility on September 24, 2007, on November 29, 2007, DRMS awarded its first-ever contract to Agility to operate six DRMOs for one base year with four option years at a fixed price of $45,233,914.92 per year. The other two offerors proposed prices well above Agility’s, at $68,394,500.47 and $71,507,029.78, respectively.

In early 2008, DRMS issued its first Task Orders, which incorporated a workload baseline dated August 4, 2007 for each DRMO (hereinafter, “the Baseline Data”). DRMS retrieved the Baseline Data from the same website it referred offerors to in Amendment 002 to view DRMS’s historical workload data. The Baseline Data detailed the received line items and scrap weight during the periods July 13 to July 19 and July 20 to July 26, 2007. The first Task Order requested work at the DRMO in Arifjan, Kuwait, with a period of performance from March 3, 2008 to March 2, 2009.

Upon commencing work in Arifjan, the largest of the six DRMOs, Agility immediately fell behind. It inherited a backlog of approximately 70,000 line items, which when compared to the Baseline Data would have equated to the line items received over approximately 30 weeks. From the start of Agility’s performance at Arif-jan, the volume of line items received at Arifjan was also greater than Agility anticipated. Over the next several months, Agility began performance at the other five DRMOs, where it also encountered backlogs at each location other than the DRMO in Speicher, Iraq. In short, the workload from the outset was substantially higher than predicted. After receiving a June 2008 letter from DRMS expressing its concerns, Agility stated it would increase staffing at the DRMOs “by more than 50% at no additional cost to the government.” J.A. 1693.

It was around this time that Agility requested clarification from DRMS regarding when it could invoke clause H.19 to request compensation for its increased workload. The parties disputed whether clause H.19’s requirement that workload must increase “by more than 150% above the average workload at the DRMO location for the preceding three (3) consecutive months,” J.A. 836, permitted Agility to compare its workload to the Baseline Data or required Agility to compare its workload to what it experienced upon beginning performance. Agility explained that if it was required to carry an increased workload for several months before initiating its request for increased compensation for additional staffing, it would be overwhelmed and unable to meet DRMS’s needs. DRMS expressed that Agility could only invoke clause H.19 if its workload exceeded the average work it experienced the three preceding months, and opined that Agility had not met the requirements of clause H.19. DRMS argued that clause H.19 only allowed a contractor to ask for an increase if the workload was originally low and then increased by 150%. It did not, according to DRMS, allow the contractor to ask for an increase if the workload was from the outset 150% or more higher than predicted.

After months of discussion, DRMS and Agility agreed to modify clause H.19 in March 2009. Instead of requiring the parties to react to a surge, the modification permitted a pricing adjustment if DRMS or Agility anticipated “an average monthly workload increase of scrap or line items at any DRMO location by more than 25% above the monthly average of [fiscal year 2008] scrap or line items received.... ” J.A. 1621. As amended, clause H.19 also required Agility to maintain its current level of staffing. Agility never submitted a formal request for costs under either the original or amended clause H.19.

The parties terminated their contract for convenience in June 2010. Agility thereafter requested funding for its additional costs associated with performance with the contract. It submitted two claims for increased costs to the contracting officer, claiming DRMS provided inaccurate workload estimates during solicitation. Agility’s claims requested $4,359,071.79 covering the period before the parties modified clause H.19 and $1,602,148.67 covering the period after the parties modified clause H.19. The contracting officer awarded Agility only $236,363.93 for its first claim and nothing for the second, determining Agility could not recover the remainder because it had not satisfied the requirements of clause H.19 and noting that Agility received an offset from its scrap sales. Agility pursued its claims in the Claims Court.

The Claims Court found that, with the exception of .the DRMO in Speicher, Agility experienced workloads “much greater” than the Baseline Data during the base year of performance:

However, it denied Agility’s claims, holding that DRMS’s conduct was acceptable because it provided Agility with reasonably available historical data. The Claims Court did not reach what impact, if any, clause H.19 had on Agility’s claims. It found that Agility provided “no cause- and-effect links to isolate its damages” and referenced the revenue Agility received from its scrap sales to hold the equities did not weigh in Agility’s favor. J.A. 16-18. Agility timely appealed. We have jurisdiction under 28 U.S.C. § 1295(a)(3).

Discussion

We review the Claims Court’s conclusions of law de novo and its findings of fact for clear error. Mass. Bay Transp. Auth. v. United States, 254 F.3d 1367, 1372 (Fed. Cir. 2001). Contract interpretation is a matter of law we review de novo. Id.

A contractor can recover damages from the government for increased costs it incurred in performing a contract under a negligent estimate theory, which requires the contractor to show by preponderant evidence that the government’s estimates were “inadequately or negligently prepared, not in good faith, or grossly or unreasonably inadequate at the time the estimate was made.” Medart, Inc. v. Austin, 967 F.2d 579, 581 (Fed. Cir. 1992). The parties agree that DRMS’s contract with Agility is a requirements contract. In a requirements contract, Federal Acquisition Regulation (“FAR”) 16.503 requires DRMS to provide offerors with a realistic estimate of workload. 48 C.F.R. § 16.503. FAR 16.503(a)(1) reads:

For the information of offerors and contractors, the contracting officer shall state a realistic estimated total quantity in the solicitation and resulting contract. This estimate is not a representation to an offeror or contractor that the estimated quantity will be required or ordered, or that conditions affecting requirements will be stable or normal. The contracting officer may obtain the estimate from records of previous requirements and consumption, or by other means, and should base the estimate on the most current information available.

The Claims Court rejected Agility’s claim of negligent estimate, finding, “[rjather than carelessly form[ ] estimates by asking DRMOs to guess their upcoming needs, DRMS provided objective, historical workload data from which the offerors could extrapolate future needs.” J.A. 15-16. It noted that DRMS informed offerors that property turn-ins would increase, and found “the offerors in this case were well aware of volume variations in the processing of surplus property.” J.A. 16. It cited Medart, where we applied FAR 16.503 to a scenario in which a contractor sought reimbursement where the government’s estimated needs varied significantly from those actually required. 967 F.2d at 580. We held that the government did not negligently estimate its needs when it provided the contractor with historical data from the prior year. Id. at 581-82. Relying on Medart, the Claims Court found that DRMS “used reasonably available historical data and did not negligently estimate its needs.” J.A. 17.

We hold that these findings are clearly erroneous for two primary reasons. First, the Claims Court ignored that DRMS did not only provide historical data; it also estimated its requirements via the Amendment 007 Chart. Second, the Claims Court failed to address evidence indicating that DRMS’s historical data was not “the most current information available.” See FAR 16.503(a)(1).

First, the Amendment 007 Chart provided by DRMS is itself an estimate of projected requirements. The RFP expressly states that “[t]he scope of this contractual effort includes all tasks DRMS performs in support of the Department of Defense mission.” J.A. 752. One such task requires the contractor to “receive, segregate, store and dispose of scrap material and items downgraded to scrap.” J.A. 779. By “providing quantity estimates of scrap commodities” for “the purpose of assisting of-ferors in preparing their proposals,” DRMS provided an estimate of its requirements for processing scrap. See J.A. 1003. The Amendment 007 Chart is also relevant to the projected amount of property turn-ins or line items. As noted by the government, because scrap is created from processing the military property, the weight of scrap would be expected to correlate with the number of line items. See Appel-lee’s Br. 32 (“As an intuitive matter, if Agility processed more property than anticipated, correspondingly its [scrap] sales proceeds increased.”). DRMS’s contracting officer likewise testified that he knew of no way to project scrap weight without projecting the amount of property turn-ins. Thus, by projecting stable and then declining scrap weight in the Amendment 007 Chart, DRMS estimated that property turn-ins would, to some .extent, remain constant and then decline. It was clear error for the Claims Court not to treat the Amendment 007 Chart as an estimate.

Second, the fact that DRMS “provided objective, historical workload data” does not end the inquiry as to whether it provided a realistic estimate. See J.A. 15-16. Medart does not hold, and we do not hold now, that providing an offeror with historical data is reasonable per se. See J.A. 14 (citing Medart, 967 F.2d at 582). In Me-dart, we recognized that FAR 16.503 explicitly states that the government “may obtain the estimate from records of previous requirements.” 967 F.2d at 582. But an important distinction between Medart and the case before us is that in Medart, the contractor did not present evidence that “the most current information available” to the government was something other than its historical requirements. See FAR 16.503(a)(1). Instead, the contractor’s arguments in that case rested on information it contended the government could have uncovered to develop a more accurate estimate. See Medart, 967 F.2d at 581-82. We rejected that argument, holding the government “need not search for or create additional information” and need only use “information that was reasonably available.” Id. at 582.

Here, unlike Medart, Agility presented evidence that DRMS possessed information regarding its anticipated requirements above and beyond its historical requirements. Agility presented a memorandum dated November 16, 2007, before DRMS awarded Agility its contract, indicating DRMS was aware of planned troop movement and a “surge of equipment and material that will be turned over to DRMS as units depart.” J.A. 1303-04. The memorandum explicitly states the anticipated surge is “[o]ne of the key reasons the contract was contemplated” and concedes “DRMS is not staffed or equipped to handle this requirement.” J.A. 1304. In fact, DRMS considered this very information in connection with its decision to award the contract to Agility. Id.; see also J.A. 1179 (evaluating the sufficiency of Agility’s proposal as compared to its “projected workload”).

Because DRMS anticipated increased workload, simply providing offerors with historical workload was not “the most current information available” sufficient to provide a realistic estimate under FAR 16.503. DRMS should have based its estimate on its anticipated “surge” in workload. Although DRMS informed offerors that it “anticipate^] an increase in property turn-ins,” it did so on June 20, 2007, J.A. 945, before it seemingly changed course on July 24, 2007 with its updated estimate in the Amendment 007 Chart, projecting stable workload for two years followed by “workload declines.” J.A. 980, 990-91. DRMS was not obligated to guarantee the accuracy of its estimates or perfectly forecast its requirements, and Agility ultimately bore the risk associated with any variance in workload from a realistic estimate. See Medart, 967 F.2d at 581. But it was clearly erroneous for the Claims Court to find that DRMS complied with the requirements of FAR 16.503 by providing historical data.

In addition to the Claims Court’s clear error in finding DRMS did not provide a negligent or inadequate estimate, the Claims Court clearly erred in finding that “Agility points to no specific cause- and-effect links to isolate its damages.” J.A. 16-17. The Claims Court cited no evidence and provided no reasoning in support of this finding. The government argues that Agility failed to show that it actually relied on the Amendment 007 Chart or DRMS’s historical data based on the dates DRMS provided these estimates to Agility. Appellee’s Br. 36. It argues the Amendment 007 Chart was provided just eight days before Agility submitted its initial proposal, and the Baseline Data was provided two days after Agility submitted its proposal. Id. Neither of the government’s arguments are supported by the record.

As for the Amendment 007 Chart, Agility’s initial proposal expressly states that Agility “used the workload data provided by the government in Amendment 007 to determine manning requirements and the amount of potential revenue from the sale of scrap.” J.A. 1063. A witness for Agility testified that Agility used the Amendment 007 Chart in formulating its proposal. This is the very purpose for which DRMS provided the Amendment 007 Chart to offer-ors: “For the purpose of assisting offerors in preparing their proposals.” J.A. 1003.

As for the Baseline Data, we note that only Agility’s initial proposal was submitted before the Baseline Data; Agility submitted its final revisions on September 24, 2007, well after DRMS provided the Baseline Data on August 4, 2007. Regardless, the Baseline Data was retrieved from the same website to which DRMS directed offerors in order to view historical data during Amendment 002. DRMS provided this website on February 26, 2007, over five months before Agility submitted its initial proposal. Agility’s initial proposal expressly states that “[m]anpower estimates ... are based on the historical size of the workload at each facility.” J.A. 1175. A witness for Agility testified that Agility visited DRMS’s website “on a regular basis” and that it factored DRMS’s historical workload data into its proposal. J.A. 127:16-23, 133:16-18. And again, this was the very purpose for which the government provided its historical data, to provide “the offerors who were going to bid on the contract a view of what was going on at the site and the most current information we had available to us” J. A. 508:2-6.

FAR 16.503 requires the government to provide a realistic estimate to offerors in requirements contracts because “presumably contractors rely on the proffered estimates in formulating their bids.” Medart, 967 F.2d at 581. The evidence overwhelmingly shows that Agility relied on DRMS’s estimates when formulating its proposal. The Claims Court found, and the parties do not dispute, that Agility experienced workloads “much greater” than the workload data DRMS provided to Agility. J.A. 8. And Agility’s claim for damages seeks to recover the costs it incurred from performing in excess of DRMS’s negligent estimates. It was clear error for the Claims Court to find there was no causal link between DRMS’s estimates and Agility’s damages.

The Claims Court declined to address whether clause H.19, which provides a mechanism for the parties to adjust the contract price if specified changes in workload are observed, forecloses Agility’s claims. J.A. 12. As an issue of contract interpretation, we hold that Agility’s claim of negligent estimate is not foreclosed by clause H.19.

The government does not contend that Agility’s claim for compensation arises under clause H.19. Instead, it argues clause H.19 is Agility’s only means of recovery. We disagree. Under FAR 16.503, DRMS was required to provide Agility with a realistic estimate of its requirements. DRMS failed to provide a realistic estimate. We see no reason why DRMS’s negligence in providing an adequate estimate during solicitation should be excused by its inclusion of a provision directed to workload changes upon performance. See J.A. 836. Agility’s claim for relief is rooted in DRMS’s violation of FAR 16.503, leading to a large disparity between pre-contract estimates and actual workloads during the performance period. Agility’s claim does not involve the limited subject of H.19, namely, sufficiently large changes in workload levels that might occur between earlier and later times entirely within the performance period. On the merits of Agility’s claim of negligent estimate, clause H.19 bears no relevance.

Finally, we address the effect of Agility’s receipt of scrap sales on its claim for an equitable adjustment. The Claims Court explained that the contract provision permitting Agility to retain scrap sale revenue somewhat mitigated Agility’s risk, stating, “if contract quantities were higher than expected, theoretically the contractor’s revenue from the sale of scrap would be higher.” J.A. 2. It found that, despite the increased workload, Agility realized less scrap proceeds than it had projected. Nonetheless, the Claims Court held, “[although Agility faced workloads significantly in excess of what it anticipated, Agility still received over $44 million in scrap proceeds over the 27 months of the contract. The fact that the scrap proceeds were ‘22.9% lower’ than Agility’s projections does not move the equities in Agility’s favor.” J.A. 18. Under the parties’ contract, however, Agility’s receipt of scrap proceeds does not limit Agility’s recovery.

The government argues Agility improperly seeks to recover both its costs associated with increased workload while retaining all of its proceeds from scrap sales. Appellee’s Br. 32. It contends DRMS anticipated that the very reason the contractor would retain scrap proceeds was to “offset some of the costs incurred in performing the contract.” Id. (quoting J.A. 894). It suggests that by processing more property than anticipated, Agility must have received more sales proceeds. Id. The government’s arguments are without merit.

The parties’ contract expressly contemplated that Agility would retain its scrap proceeds. DRMS’s RFP stated that the contractor “is entitled to all sales proceeds” from scrap sales. J.A. 894. During solicitation, DRMS explained that the contractor would retain such scrap proceeds ‘“free and clear’ without any type of reduction in payments.” J.A. 1010-11. While DRMS stated such scrap sales were intended to “offset some of the costs incurred in performing this contract,” J.A. 894, the only impact Agility’s scrap proceeds were to have on the contract price was the offset Agility offered to DRMS in its proposal. Agility proposed an offset of $20,342,608 from scrap proceeds over the life of the contract, offering an offset of $5,730,312 for both the base year and first option year. The government does not dispute that Agility honored this commitment and DRMS received an offset of $11,460,624 during its two years of performance. That Agility received scrap proceeds above what it offered to DRMS does not mean Agility would recover more than it is entitled to by prevailing on its negligent estimate claim. Under the contract, Agility is entitled to its scrap proceeds above the offset it offered DRMS regardless of its workload. Moreover, as found by the Claims Court, the scrap proceeds Agility actually retained were below the amount it projected. Agility’s scrap proceeds do not offset the additional cost it incurred in performing the contract. There is nothing in the record to suggest that Agility benefited from DRMS’s failure to provide a realistic estimate as required by FAR 16.503.

We thus hold that the Claims Court’s findings that DRMS did not inadequately or negligently prepare its estimates and that Agility did not rely on those estimates are clearly erroneous. We hold Agility’s receipt of scrap sales and the parties’ agreement to clause H.19 do not preclude Agility from recovering under this claim. We reverse the Claims Court’s denial of Agility’s negligent estimate claim and remand for calculation of Agility’s equitable adjustment.

Conclusion

For the foregoing reasons, we reverse the Claims Court’s denial of Agility’s claim for increased costs and remand for further proceedings consistent with this opinion.

REVERSED AND REMANDED

Costs

Costs to Agility.

      . Agility pursued three theories of recovery in the Claims Court and on appeal to this court: (1) constructive change of contract; (2) negligent estimate; and (3) breach of warranty of reasonable accuracy. Because Agility's theories of recovery are alternative to one another, we reach only Agility's claim of negligent estimate.


source: Caselaw Access Project

author: LOURIE, Circuit Judge.

license: Public Domain

text:
    AMERICAN TUBULAR PRODUCTS, LLC, Jiangsu Chengde Steel Tube Share Co., Ltd., Plaintiffs-Appellants v. UNITED STATES, United States Steel Corporation, TMK IPSCO, Wheatland Tube Company, V & M Star L.P., Defendants-Appellees
    2016-1127
    United States Court of Appeals, Federal Circuit.
    Decided: February 13, 2017

      Donald CameROn, JR., Morris, Manning & Martin, LLP, Washington, DC, for plaintiffs-appellants. Also represented by Mary Hodgins, Julie Mendoza, Brady Mills, R. Will Planert, Sarah Suzanne SPRINKLE.
    Loren Misha Preheim, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellee United States. Also represented by Benjamin C. MizeR, JeaNne E. Davidson, Claudia BuRKE; Whitney Maeie Rolig, Office of the Chief Counsel for Trade Enforcement and Compliance, United States Department of Commerce, Washington, DC.
    Philip ChaRles SteRnhell, Quinn Emanuel Urquhart & Sullivan, LLP, Washington, DC, argued for defendant-appellee United States Steel Corporation. Also represented by Debbie Leilani Shon, Jonathan Gordon Cooper, Jon David Corey, Kelsey Rule.
    Roger Brian Schagrin, Schagrin Associates, Washington, DC, for defendants-ap-pellees TMK IPSCO, Wheatland Tube Company, V & M Star L.P. Also represented by John W. Bohn, Jordan Charles Kahn.
    Before NEWMAN, MAYER, and LOURIE, Circuit Judges.
   LOURIE, Circuit Judge.

American Tubular Products, LLC (“ATP”) and Jiangsu Chengde Steel Tube Share Co., Ltd. (“Chengde”) (collectively, “the Appellants”) appeal from the decisions of the United States Court of International Trade (“the Trade Court”) affirming the Department of Commerce’s (“Commerce”) antidumping duty calculations in the first administrative review of an antidumping duty order directed to certain oil country tubular goods (“OCTG”) from the People’s Republic of China. See Am. Tubular Prods., LLC v. United States, No. 13-00029, 2015 WL 5236010 (Ct. Int’l Trade Aug. 28, 2015) (“ATP II") (affirming Commerce’s remand results); Am. Tubular Prods., LLC v. United States, No. 13-00029, 2014 WL 4977626 (Ct. Int’l Trade Sept. 26, 2014) (“ATP F) (affirming in part and remanding in part Commerce’s final results). In that administrative review, Commerce ultimately calculated a weighted average dumping margin of 137.62% for Chengde. See Am. Tubular Prods., LLC v. United States, No. 13-00029, ECF No. 102, 2015 WL 5236010 (Ct. Int’l Trade Jan. 28, 2015) (“Remand Results”). Because we agree with the Trade Court that Commerce’s antidump-ing duty calculations were supported by substantial evidence and otherwise in accordance with law, we affirm.

BACKGROUND

OCTG are steel tubing products used in oil and gas drilling. Chengde is a Chinese producer and exporter of OCTG, and ATP is the importer of record during the relevant period. In June 2011, Commerce initiated the first administrative review of the antidumping duty order directed to OCTG from China. Initiation of Antidumping and Countervailing Duty Administrative Reviews, 76 Fed. Reg. 37,781 (Dep’t of Commerce June 28, 2011); Initiation of Antidumping and Countervailing Duty Administrative Reviews, 76 Fed. Reg. 53,404 (Dep’t of Commerce Aug. 26, 2011) (correcting the period of review). Commerce selected Chengde as a mandatory respondent.

Because China is considered a nonmark-et economy (“NME”) country, Commerce selected Indonesia, a market economy (“ME”) country, as the primary surrogate country from which it would use surrogate values to ascertain Chengde’s factors of production. Certain Oil Country Tubular Goods from the People’s Republic of China, 77 Fed. Reg. 34,013 (Dep’t of Commerce June 8, 2012) (“Preliminary Results”). In the Final Results, as later amended, Commerce assigned Chengde a dumping margin of 162.69%. Certain Oil Country Tubular Goods from the People’s Republic of China, 77 Fed. Reg. 74,644 (Dep’t of Commerce Dec. 17, 2012) (“Final Results”), as amended by Certain Oil Country Tubular Goods from the People’s Republic of China, 78 Fed. Reg. 9,033 (Dep’t of Commerce Feb. 7, 2013). The Appellants appealed to the Trade Court, raising three issues that are relevant in this appeal. We provide further factual and procedural background for each of those issues in turn.

A. Steel Billets

The first issue pertains to Commerce’s valuation of steel billets used in the production of OCTG. Steel billets may be composed of carbon steel or the more expensive alloy steel. In its initial questionnaire, Commerce requested Chengde to “[d]escribe each type and grade of material used in the production process.” J.A. 168. Chengde responded that it consumed steel billets, and its counsel listed a Harmonized Tariff Schedule (“HTS”) subheading that covers products of alloy steel as the proper tariff subheading for its steel billets. J.A 669.

Commerce then issued supplemental questionnaires, requesting sample mill test certificates for various control numbers (“CONNUMs”). A CONNUM is a code used to identify distinct products within the class of subject merchandise under review. Chengde submitted the sample mill certificates. J.A. 1720-25, 3161-71. Those certificates contained information on the chemical composition of the sampled OCTG, which constituted a portion, but not all, of OCTG sold in sixteen of nineteen sales made by Chengde during the period of review. In addition, Commerce requested clarification of the technical descriptions of Chengde’s raw material inputs. J.A. 886. Chengde again responded with a general description of its steel billet input. J.A. 950-51.

In the Preliminary Results, Commerce valued steel billets using a surrogate value for alloy steel. Chengde then argued that Commerce should have used a surrogate value for carbon steel. Chengde explained that its counsel’s prior reference to the HTS number for alloy steel was an inadvertent error, and that it in fact used carbon steel billets. Chengde called Commerce’s attention to the mill certificates on the record, which showed that the tested OCTG were all made of carbon steel.

In the Final Results, as amended, Commerce used a carbon-steel surrogate value, but only for the portion of OCTG directly shown to be made of carbon steel by the mill certificates. For the remaining OCTG, Commerce continued to value the steel billet input using an alloy-steel surrogate value.

On appeal, the Trade Court remanded Commerce’s selection of surrogate values for steel billets. For the sixteen sales partially supported by the mill certificates, the court directed Commerce to “explain whether Chengde’s mill certificates prove the chemical properties of OCTG not specifically tested.” ATP I, 2014 WL 4977626, at *7. Moreover, the court found that Commerce had failed to consider a Customs entry summary relating to an additional (seventeenth) transaction,* which classified the OCTG as carbon steel. The court directed Commerce to assess whether the entry summary proved that the OCTG sold in that transaction were carbon steel. Id.

On remand, Commerce explained that it was unable to conclude that the OCTG not specifically tested were necessarily carbon steel, noting the uncertainties in Cheng-de’s sampling process and its failure to provide the requested technical descriptions of its steel billet input. Commerce found, however, that the Customs entry summary established that the entered OCTG were composed of carbon steel. Commerce thus continued to use a carbon-steel surrogate value to value the portion of steel billets for which there was direct evidence, viz., the mill certificates or entry summary, to show that carbon steel billets were consumed. As for the remaining portion of steel billets at issue, Commerce used a simple average of the surrogate values for carbon steel billets and alloy steel billets. Accordingly, Commerce recalculated Chengde’s weighted average dumping margin as 137.62%.

The Appellants again appealed to the Trade Court. The court sustained Commerce’s Remand Results, finding that Commerce reasonably chose to use a simple average of the surrogate values of carbon and alloy steel billets for the untested OCTG. ATP II, 2015 WL 5236010, at *6-9. The court agreed with Commerce that OCTG under the same contract or CON-NUM could have different chemical compositions, id. at *7, and that Chengde’s mill certificates lacked sufficient detail to establish that the untested OCTG were made of carbon steel, id. at *8. The court further noted that Chengde could have shown that its billets were carbon steel by answering Commerce’s questionnaires “with exactness,” but it failed to do so. Id.

B. Byproduct Offset

The second issue pertains to byproduct offset. The production of OCTG may generate steel scrap, which may be sold for revenue to offset the raw material cost for producing the OCTG that generated the scrap. In its initial questionnaire, Commerce requested information on the quantity of byproduct “produced, sold, reintroduced into production, or otherwise disposed of,” as well as records demonstrating the production of byproduct during one month of the period of review. J.A. 169. In response, Chengde explained that it did not measure or record steel scrap production at the time it was produced, but rather measured the scrap quantity when it was sold. J.A. 651-52. Chengde provided the quantities of monthly scrap sales for the period of review. J.A. 685-86. Commerce did not request further information regarding scrap offset.

In the Preliminary Results and the Final Results, Commerce declined to allow any scrap offset because Chengde had failed to quantify the amount of scrap produced. On appeal, the Trade Court sustained Commerce’s denial of scrap offset as supported by substantial evidence and in accordance with law, finding that Chengde had failed to meet Commerce’s requirements to secure a scrap offset. ATP I, 2014 WL 4977626, at *9-12.

C. International Freight

The third issue pertains to Commerce’s valuation of Chengde’s international freight expense. Chengde reported that most of its OCTG exports to the United States were shipped by carriers based in South Korea, an ME country, and that it paid for ocean freight in U.S. dollars. Chengde showed that it remitted the freight expense via a Chinese freight forwarder, which in turn paid the Chinese agents of the Korean carriers, and those agents then paid the carriers in U.S. dollars. However, Chengde did not provide any evidence on the amount paid by the Chinese agents to the Korean carriers. It instead submitted certifications from two Chinese agents stating that payments were made in U.S. dollars, and that actual payment documentation was proprietary.

In the Preliminary Results, Commerce calculated international freight using a surrogate value, as if it was purchased from an NME supplier. Commerce continued to do so in the Final Results, finding that Chengde had failed to establish that the Korean carriers set the freight price. On appeal, the Trade Court sustained Commerce’s use of a surrogate value to calculate international freight. The court observed that “there is no proof that the Korean shippers hired the Chinese agents to collect Chengde’s fees,” and thus “there is little reason to believe that the price paid to the agents equaled the price remitted to the shippers.” ATP I, 2014 WL 4977626, at *13.

After the Trade Court affirmed Commerce’s Remand Results, the Appellants appealed to this court. We have jurisdiction under 28 U.S.C. § 1295(a)(5).

Discussion

In trade cases, we apply the same standard of review as the Trade Court, upholding Commerce’s determinations unless they are “unsupported by substantial evidence on the record, or otherwise not in accordance with law.” 19 U.S.C. § 1516a(b)(l)(B)(i). Although we review the decisions of the Trade Court de novo, “we give great weight to the informed opinion of the [Trade Court] ..., and it is nearly always the starting point of our analysis.” Ningbo Dafa Chem. Fiber Co. v. United States, 580 F.3d 1247, 1253 (Fed. Cir. 2009) (internal quotation marks, brackets, and citations omitted).

The Appellants challenge three aspects of Commerce’s antidumping duty calculations: (1) Commerce’s decision to use a simple average of surrogate values for carbon steel billets and alloy steel billets for the untested OCTG; (2) its denial of scrap byproduct offset; and (3) its treatment of international freight as NME transactions. We address each of those issues in turn.

A. Steel Billets

We first consider whether Commerce erred in using a simple average of surrogate values for carbon steel billets and alloy steel billets for the untested OCTG.

The Appellants argue that the sample mill certificates demonstrate that the untested OCTG were composed of carbon steel, not alloy steel. They emphasize that the untested OCTG were sold in the same transactions under the same CONNUMs as the tested OCTG. They criticize Commerce for not finding the mill certificates representative of the untested OCTG because Commerce requested only sample mill certificates. According to the Appellants, for the seventeen transactions at issue, there is no evidence that Chengde consumed alloy steel billets. They assert that Commerce improperly relied on the erroneous HTS number provided by Chengde’s former counsel.

The United States, United States Steel Corporation, TMK IPSCO, Wheatland Tube Co., and V & M Star L.P. (collectively, “the Appellees”), filing three separate briefs, respond that Commerce’s selection of surrogate value for steel billet input was supported by substantial evidence. The Appellees contend that the record is inconclusive as to the chemical content of the untested OCTG, and that Chengde failed to prove that all of its steel billets were made of carbon steel. The Appellees note that Chengde used both carbon steel billets, as shown by the mill certificates and entry summary, and alloy steel billets, as shown by Chengde’s website, to produce OCTG. They argue that Commerce therefore reasonably valued the steel billets by averaging the surrogate values.

We agree with the Trade Court and the Appellees that substantial evidence supports Commerce’s decision to use an average surrogate value of carbon steel and alloy steel. Commerce reasonably concluded that the record did not demonstrate whether the untested OCTG were produced exclusively from carbon steel or alloy steel billets. Rather, it is undisputed that Chengde’s website showed that it sold OCTG made of alloy steel under two contracts during the period of review, whereas the sample mill certificates and entry summary showed that Chengde used carbon steel billets for some of its OCTG. Faced with this record, Commerce reasonably used a simple average of the surrogate values for alloy and carbon steel for the portion of the billets for which the type of steel was not apparent. Substantial evidence thus supports Commerce’s decision.

As Commerce correctly found, the sample mill certificates submitted by Chengde were limited. They did not indicate whether they represented the entire quantity of a sales contract, and did not provide context for their relevance to the untested products by describing the testing procedures. The certificates represented limited quantities of the sales contracts or CON-NUMs involved. Moreover, as Commerce found, the OCTG under each contract could be produced in multiple heats, i.e., production runs or batches, and that the mill certificates did not list all of the required test results for each heat. Thus, we agree with Commerce and the Trade Court that the mill certificates were not representative of the untested OCTG.

As the Trade Court noted, Commerce repeatedly requested technical descriptions of Chengde’s raw material input, but Chengde failed to provide a straightforward and sufficient description of the chemical composition of its steel billets. Chengde’s other submissions, including the sample mill certificates, were insufficient to establish the nature of its steel billet input as to the untested OCTG. Given this record, Commerce reasonably valued the untested steel billets by averaging the surrogate values of both carbon and alloy steel. See Nan Ya Plastics Corp. v. United States, 810 F.3d 1333, 1337-38 (Fed. Cir. 2016) (explaining that “the burden of creating an adequate record lies with interested parties and not with Commerce” (internal quotation marks and citation omitted)).

We therefore conclude that Commerce’s use of a simple average of surrogate values of carbon and alloy steel billets for the untested OCTG is supported by substantial evidence and otherwise in accordance with law.

B. Byproduct Offset

We next consider whether Commerce erred in declining to make any scrap byproduct offset because Chengde failed to provide any records to establish the quantity of scrap produced, rather than the quantity of scrap sold.

The Appellants raise numerous arguments challenging Commerce’s denial of scrap offset. First, they argue that Commerce acted arbitrarily in this case because, in previous cases, it has allowed byproduct offsets based on information similar to that provided by Chengde. Second, they argue that 19 U.S.C. § 1677b(f)(l)(A) requires that Commerce base its cost calculations on the books and records of the producer unless it determines that the information does not “reasonably reflect” actual costs, and that Commerce failed to make such a finding here. Third, they argue that under 19 U.S.C. § 1677m(d), when Commerce finds that information submitted by a respondent is deficient, it must notify the party of the deficiency and provide an opportunity for correction, and that Commerce failed to do so here. Fourth, they argue that the scrap sales data submitted by Chengde satisfy all of the statutory requirements of 19 U.S.C. § 1677m(e), and thus that Commerce may not decline to consider the information even if it did not comply with all of Commerce’s requirements. Finally, they argue that Commerce’s refusal to make any byproduct offset constituted a de facto application of adverse facts available, without any finding that Chengde had failed to cooperate to the best of its ability.

The Appellees respond that Commerce reasonably denied Chengde’s request for scrap offset because Chengde failed to show that the scrap sold was generated from the production of OCTG, not some other products, and that the scrap was in fact produced during the period of review. The Appellees maintain that Commerce’s denial of scrap offset in this case is consistent with its standard practice. The Appel-lees contend that the statute is silent on scrap offset, and Commerce has filled that gap with regulations. The Appellees also respond that Chengde informed Commerce that it did not account for the quantities of scrap as produced, and thus Commerce was not required to continue asking for that information or to accept Cheng-de’s deficient evidence. Finally, the Appel-lees respond that Commerce did not apply any adverse inference; rather, according to the Appellees, Commerce simply concluded that Chengde did not meet its burden of establishing the requested scrap offset.

We agree with the Trade Court and the Appellees that Commerce did not err in declining to allow any scrap offset in this case. Chengde did not establish the quantity of scrap generated from the production of OCTG during the period of review. It simply failed to satisfy its evi-dentiary burden, and Commerce properly decided not to grant the requested offset.

The statute governing the calculation of normal value, 19 U.S.C. § 1677b(c), does not discuss the treatment of byproducts. Commerce promulgated regulations stating that it may make adjustments to normal value, but that “[t]he interested party that is in possession of the relevant information has the burden of establishing to the satisfaction of the Secretary the amount and nature of a particular adjustment.” 19 C.F.R. § 351.401(b). Accordingly, Chengde bears the burden of establishing its entitlement to a scrap offset.

Here, Chengde submitted documentation of its scrap sales to Commerce, but it could not document the quantity of scrap produced during the period of review. Chengde’s proposed offset calculation instead equated total scrap sold during the period of review with total scrap produced during the period of review. However, as Commerce explained, Chengde failed to present any evidence to show either that the production of OCTG, the subject merchandise, actually generated the scrap sold, or that the scrap sold was indeed produced during the period of review. Absent evidence linking the scrap sold with any scrap generated resulting from the production of OCTG during the period of review, Commerce properly found that Chengde’s submissions were insufficient and properly denied the requested offset.

We find the Appellants’ remaining arguments to be unavailing. First, this case is factually distinct from the cases cited by the Appellants. In those cases, Commerce had additional information linking the requested byproduct offset to the production of subject merchandise during the period of review. Chengde failed to make that showing in this case. Second, the statutory provisions cited by the Appellants are in-apposite. In this review, Commerce requested Chengde to provide records demonstrating the production of OCTG during the period of review. Chengde unambiguously responded that it did not measure or record steel scrap production at the time it was produced. On this record, Commerce was not obligated to accommodate Cheng-de’s failure to document scrap production; nor was Commerce obligated to continue asking for information that Chengde clearly stated it did not record. Lastly, we agree with the Appellees that Commerce did not apply any adverse inference in its denial of scrap offset. Rather, Chengde simply failed to satisfy its evidentiary burden of establishing the requested offset, as the regulation requires. See 19 C.F.R. § 351.401(b).

Accordingly, we conclude that Commerce’s denial of steel scrap offset is supported by substantial evidence and otherwise in accordance with law.

C. International Freight

We last consider whether Commerce erred in finding that Chengde’s international freight transactions constituted NME transactions. The Appellants argue that the record evidence shows that Chengde’s ocean freight was in fact furnished by ME carriers and that Chengde paid for the freight in U.S. dollars. They argue that Commerce acted unreasonably in finding that Chengde purchased ocean freight from an NME supplier.

The Appellees respond that Chengde failed to satisfy Commerce’s requirements to prove that its ocean freight constituted ME purchases. Specifically, the Appellees argue that Chengde failed to provide any documentation to establish the amount paid by the Chinese agents to the Korean shippers, or to otherwise show that the price it paid for ocean freight was set by ME shippers. The Appellees also argue that Commerce has consistently required respondents such as Chengde to link the amount paid to an NME intermediary or agent with that paid to an ME carrier.

We agree with the Trade Court and the Appellees that Commerce properly calculated Chengde’s ocean freight expenses using a surrogate value. The statute presumes that government action distorts the prices that NME exporters pay for their inputs. See 19 U.S.C. §§ 1677(18), 1677b(c)(l). In limited circumstances, however, pursuant to the regulation in effect at the relevant time, Commerce would “normally” value an input purchased from an ME supplier and paid for in an ME currency using “the price paid to the [ME] supplier.” 19 C.F.R. § 351.408(c)(1) (2012). Accordingly, “under the regulation, merely establishing that the factor was purchased from [an ME] supplier is not enough; rather, the amount paid to the supplier must be documented.” Yantai Oriental Juice Co. v. United States, 26 C.I.T. 605, 615 (2002).

Here, Chengde failed to properly establish the price paid to the ME shippers or to otherwise show that the price it paid for ocean freight was set by the ME shippers. The record shows that Chengde paid its ocean freight expenses to a freight forwarder in China, who then paid the Chinese agents of Korean carriers, who in turn paid the Korean carriers. Because the first two transactions were between Chinese entities, Chengde is required to link the price it paid to the freight forwarder to the price paid to the Korean shippers. However, Chengde failed to make that showing. It only provided declarations that the Chinese agents paid the Korean shippers in U.S. dollars.

Accordingly, the only prices on the record relating to ocean freight are those between Chinese entities, not the prices paid to the Korean carriers. On this record, Commerce properly declined to value Chengde’s international freight as an ME input and properly used a surrogate value to calculate international freight costs. See Nan Ya, 810 F.3d at 1337-38. We therefore conclude that Commerce’s decision is supported by substantial evidence and otherwise in accordance with law.

Conclusion

We have considered the Appellants’ remaining arguments, but find them to be unpersuasive. For the foregoing reasons, we conclude that Commerce’s antidumping duty calculations were supported by substantial evidence and otherwise in according with law. We therefore affirm the Trade Court’s decisions sustaining Commerce’s antidumping duty calculations.

AFFIRMED

       As to the remaining two of the nineteen sales covered by the review, the Trade Court affirmed Commerce's use of an alloy-steel surrogate value based on evidence of a screen-shot of Chengde’s website, which showed that the OCTG sold in those two transactions were composed of alloy steel. The Appellants do not challenge that aspect of the Trade Court's decision.