Takeaways

Government officials are actively encouraging collaboration with, and less antagonism of, industry contractors.
Recent case law suggests a growing trend to award damages to contractors when the government breaches the duty of good faith and fair dealing.
Contractors seeking to take advantage of these trends should explore formal partnering with their clients to reduce future claims and early ADR to resolve existing ones.

Implicit in every government contract is a duty that the parties treat each other fairly and act in good faith. This duty requires the parties to cooperate in performance of the contract and refrain from hindering the other party’s reasonable expectations. The Boards and Court of Federal Claims (COFC), however, have not always held the government to standards that have satisfied contractor parties. Recent decisions at the COFC and Boards, as well as comments from key government officials, may usher in a welcome change in how government contracting parties treat each other.

The Pentagon has signaled a renewed commitment to support contractors. On March 1, 2018, the U.S. Air Force committed to comment less with the press (and public) and communicate more with its industry contractors. On August 8, the Navy stated that it had changed the dialogue with its suppliers in an effort to improve on “antagonistic” dealings. Further, during an open presentation on August 9, 2018, which we attended, leadership from NAVFAC Southwest commented that it would cooperate more with its contractors and increase formal partnering to reduce risk and delays.

Three recent case law decisions highlight that the Courts and Boards may more closely scrutinize the government’s good faith as well. In Appeal of Relyant LLC, ASBCA No. 59809 (June 27, 2018), the contractor had requested an amendment to the Statement of Work to utilize alternative wall materials and insulation in the construction of pre-fabricated buildings. The Armed Services Board of Contract Appeals (ASBCA) held that although the government had the right to immediately reject the request for any reason or no reason at all, “allowing Relyant to, figuratively, ‘twist in the wind’ from late April to early August 2009 as the government mulled whether” to allow the modification “was contrary to Relyant’s reasonable contract-based expectations.” Appeal of Relyant, LLC, ASBCA No. 59809 at 23. In reaching this conclusion, the ASBCA cited a number of factors, including that 1) the government was aware Relyant was awaiting an answer for several months; 2) the government was aware that its delay in decision-making would cause Relyant to incur additional costs; 3) no circumstances justified an extended wait before; and 4) the government could have made its decision within a matter of days. Id. at 25. While the Board awarded only a fraction of the damages sought, the decision signifies a willingness to compensate contractors for government inaction, even in cases where the government had no duty to act.

The COFC considered the government’s duty of good faith and fair dealing in Planate Management Group LLC v. U.S., No. 17-1968C (Fed. Cl. July 27, 2018). Here, evolving security risks at Afghan Air Force locations prompted the government to order the plaintiff to arm its personnel. The plaintiff requested an equitable adjustment and received no response, then prepared an updated request for equitable adjustment (REA) which the government denied. Id. at 5. The plaintiff converted its REA to a certified claim, and the government denied that as well. In appealing its claims to the COFC, the plaintiff alleged the Army “breached its obligation of good faith and fair dealing by requiring plaintiff to arm its personnel for personal protection and then failing to reimburse plaintiff for the costs of such personal protection.” Id. at 12. The court denied defendant’s motion to dismiss and allowed plaintiff’s novel good faith and fair dealing theory to survive.

Finally, in Appeal of North American Landscaping, Construction and Dredge Co. Inc., ASBCA Nos. 60235, 60236, 60237, 60238 (Aug. 9, 2018), the appellant had performed a maintenance and dredging contract for the Army Corps of Engineers (USACE). The facts of this matter are rather spectacular. The Board found that the Corps should not have even awarded the contract to appellant and only did so to take advantage of their very low price. Thereafter, the Corps ignored changed conditions, abused its discretion by not paying the contractor for mobilizations costs, mocked the contractor in internal government emails, and forced (through coercive acts) the contractor into a settlement that was significantly lower than the government’s own estimates. Numerous pleas by the contractor for fair dealing went unanswered, even while Corps employees were encouraging their colleagues to resolve the matter fairly. In the end, the Board invalidated the modification and release that had accompanied the coercive, bilateral settlement and issued a remand to resolve quantum in light of the government’s egregious breach of the implied covenant of good faith, fair dealing and non-interference.

While the latter case in particular relied on a unique set of facts that contractors typically do not experience, we do note that the last three good faith and fair dealing cases have gone the contractor’s way. This helpful precedent coupled with a renewed Pentagon interest in partnering may lead to smoother performance for the proactive contractor.