A T FOR C MAY BE A BREACH OF CONTRACT

Judge Nancy B. Firestone, of the U. S. Court of Federal Claims COFC), has just handed down an opinion in which she holds that the government's termination for convenience (T for C) may be a breach of a non-commercial item procurement contract for security services in Iraq and Afghanistan.  The Department of Defense (DOD) awarded two contracts to the plaintiff but then terminated each for its convenience.  After reviewing all the relevant Court of Appeals for the Federal Circuit (CAFC) opinions, she concludes:

The court reads these precedents to include liability for breach of contract based on an improper termination for convenience where the government has engaged in some form of improper self-dealing for its own benefit or to the benefit of another contractor.

Her discussion hinges on the linchpin of the duty of good faith and fair dealing.

She begins her discussion pointing out that the government's right to terminate a contract for convenience without giving rise to a breach of contract claim has its roots in military contracts.  The military needed the clause so as to avoid large, unneeded military procurements upon cessation of war and other hostilities.  She then acknowledges that the CAFC has held a T for C may give rise to a breach claim where there is bad faith or an abuse of discretion.  The CAFC also has recognized  a T for C can be a breach when the government "contracts with a party knowing full well it will not honor the contract."

Importantly, a claim for breach of contract based on breach of the implied duty of good faith and fair dealing is different than a claim for breach based on an improper T for C.  The implied duty of good faith and fair dealing is inherent in every contract.  This duty requires each party "do everything that the contract presupposes should be done by a party to accomplish the contract's purpose."  A party must not destroy the reasonable expectations of the other party.

The breach of the obligation to exercise good faith and fair dealing also includes, as we have written many times, the duty to cooperate, communicate with and not interfere in the other party's performance.  Again, and very importantly, proof of bad faith is not required to show a breach of the implied duty of good faith and fair dealing in most cases.  As Judge Firestone notes:  "Evidence of government intent to harm the contractor is not ordinarily required."

Judge Firestone agrees with the government that breach of the covenant of good faith and fair dealing cannot be the basis for a claim of an improper T for C.  However, animus toward the contractor is not required.  The government can abuse its discretion by not intending for the contract to go forward, by terminating for convenience in order to get a better price for itself and by entering into a contract without intending to allow the contractor to perform.  These are breaches of the duty of good faith and fair dealing and are therefore an abuse of discretion.

Judge Firestone concludes with the language quoted above: the government can breach the contract by some form of "improper self-dealing for its own benefit" such as terminating a contract just so it can award it to another contractor (which was the alleged case before the judge).

Can the government breach this duty of good faith and fair dealing by walking away from an awarded contract just so as to take the work in-house due to sequestration or budget limitations?  Perhaps.  Is it "improper self-dealing" or not? 

bill@spriggsconsultingservices.com                          www.spriggslawgroup.com

From Federal Times: As budgets tighten, contract attorneys expect uptick in bid protests

Two weeks after sequestration began, contract lawyer Bill Spriggs got a call from a vendor client upset that a federal contracting official had just ordered it to cut its price by 10 percent for “sequestration-related cuts” without a change in service levels.

Spriggs declined to name the contractor or agency, but said the dispute involved a non-defense civilian agency and a commercial item contract where changes can’t occur unless by mutual agreement.

“It’s the first time I’ve seen something like that,” said Spriggs, who runs the Spriggs Law Group in Virginia.

While lawyers sort out the dispute, the larger question is whether the incident was just an anomaly or perhaps an early sign that the sequester will bring about more contract disputes and bid protests.
For more, click on the link:

http://www.federaltimes.com/article/20130403/ACQUISITION03/304030007/As-budgets-tighten-contract-attorneys-expect-uptick-bid-protests?odyssey=nav%7Chead

SUE THE CONTRACTING OFFICER?

Occasionally, we've been asked if it is possible to sue the contracting officer personally.  For a lot of reasons, we discourage such an action, not the least of which is the questionable motivation for doing it.  Not too long ago, a contractor terminated for default decided to sue the contracting officer in U.S. District Court and the Court of Appeals for the Second Circuit very recently decided the appeal of that suit.  Let's take a look at the facts and briefly review what the circuit court decided.

The contractor sued the procuring contracting officer (PCO), the Chief of Contracting, the administrative contracting officer (ACO) and the Program Manager for the New York District Corps of Engineers.  The suit alleged that the contractor's contracts were terminated in retaliation for the contractor's criticism of the Corps' mismanagement of construction projects, that the terminations negatively impacted the contractor's business and that, as a result, the contractor was deprived of its constitutionally protected rights to free speech and substantive due process.  The contractor had appealed the terminations of its contracts to the Armed Services Board of Contract Appeals (ASBCA) but those appeals were dismissed (for reasons not germane here) without prejudice.

In a case called Bivens, the U. S. Supreme Court ruled in 1971 that a cause of action existed for victims of unreasonable searches and seizures against the government agents conducting the complained of searches and seizures.  The Court said it would infer a private right of action for monetary damages where no other federal remedy is available based on the principle that for every wrong, there must be a remedy.  Three Justices dissented, saying such "legislating" should be left to Congress.  Thus, there was born what became know as a "Bivens action" in court.  (The Second Circuit was reversed in Bivens.)

In revisiting the issue last month, the Second Circuit considered whether the Contract Disputes Act (CDA) of 1978 precluded the contractor's Bivens action.  It noted that other circuit courts had decided just such a preclusion existed.

The court started its discussion noting that precisely because the Bivens action is a judicially created remedy (not based on statute), federal courts have been reluctant to recognize a broad application of such implied judicial relief.  The remedy is an extraordinary thing that should rarely if ever be applied in new contexts.  If there is an alternative remedy available, the implied relief should not be granted.

The court concluded that in the face of the comprehensive CDA scheme of relief, federal courts should decline to infer new substantive legal liability without legislative aid.  Although the CDA does not allow contractors to bring actions against government employees in their individual capacities for alleged violations of constitutional rights, nevertheless, the CDA affords a meaningful and exclusive remedy against the government.  In effect, the CDA remedy is exclusive for all claims arising out of or related to government contracts.  Therefore, contractors cannot sue the government employees in their individual and personal capacities.

So contractors have an exclusive remedy under the CDA and cannot sue the contracting officer personally.  And if contractors still have retribution on their minds, they also should be wary of alleging bad faith.  Government employees are legally presumed to be acting in good faith and successfully overcoming that presumption requires a showing of well-nigh irrefragable proof.

And the obvious question:  can the contractor sue the PCO and others personally for pre-award actions and inactions?  We're looking for a case but it would seem the Competition in Contracting Act CICA) provides what may be described as a meaningful and exclusive remedy through the bid protest procedures.

bill@spriggslawgroup.com                                     www.spriggsconsultingservices.com