The Navy knew that one of the Offerors was planning to mine the property for sand and gravel, but did not tell that Offeror that the Navy had concluded that such mining was tantamount to sale of the dairy farm, rather than a lease—and the authorizing statute, 10 U.S.C. § 6976(a)(2), did not allow sale of the property. The Offeror incurred substantial bid preparation costs and fees before the Navy told the Offeror that its Offer could not be considered.

The quandary results from two possible sources of protest jurisdiction for the United States Court of Federal Claims: 28 U.S.C. § 1491(a)(1), which gives the Court jurisdiction “to render judgment upon any claim against the United States . . . founded upon any express or implied contract with the United States”; and 28 U.S.C. § 1491(b)(1), which gives the Court jurisdiction:

to render judgment on an action by an interested party objecting to a solicitation by a Federal agency for bids or proposals for a proposed contract or to a proposed award or the award of a contract or any alleged violation of statute or regulation in connection with a procurement or a proposed procurement.

28 U.S.C. § 1491(a)(1), a part of the Tucker Act, is the Court’s primary jurisdictional authority and has been held prior to 1996 to give the United States Court of Federal Claims protest jurisdiction, this from a claimed breach of the implied-in-fact contract of fair and honest consideration which arises from Federal solicitations in connection with the purchase or sale of real or personal property.

28 U.S.C. § 1491(b)(1) was enacted in 1996 and explicitly gives the Court protest jurisdiction “in connection with a procurement or proposed procurement.” The term “procurement” in 28 U.S.C. §1491(b)(1) is limited to the definition of “procurement” in 41 U.S.C. § 403(2), and thus it is limited to “all stages of the process of acquiring property or services.”

Since 1996, the United States Court of Federal Claims has in some cases decided that its protest jurisdiction lies under both 28 U.S.C. § 1491(a)(1) and 28 U.S.C. § 1491(b)(1), and in other cases the United States Court of Federal Claims has decided that any protest jurisdiction under 28 U.S.C. § 1491(a)(1) has been supplanted by the protest jurisdiction, and the limitations on that protest jurisdiction, conferred in 28 U.S.C. § 1491(b)(1).

The result is confusion about just what actions can today be challenged before the United States Court of Federal Claims—for instance, a sale of Federal personal property can be challenged under 28 U.S.C. § 1491(a)(1) but not under 28 U.S.C. § 1491(b)(1) because a Federal sale is not a Federal “procurement.”

An example is a Forest Service sale of timber from Federal lands, a sale which was properly challenged in the United States Court of Federal Claims in 1988. If 28 U.S.C. § 1491(a)(1) still has force and effect, similar Federal timber sales can be challenged today; if 28 U.S.C. § 1491(a)(1) has been supplanted by the protest jurisdiction conferred in 28 U.S.C. § 1491(b)(1), then a timber sale (or any other sale of surplus Federal property) cannot be challenged in the United States Court of Federal Claims because these actions are not “procurements” as defined by 41 U.S.C. § 403(2).

Resource Conservation Group resolves these issues, for here the Federal Circuit holds that while relief in the “procurement” context is exclusive under 28 U.S.C. § 1491(b)(1), relief under 28 U.S.C. § 1491(a)(1) is still available where a Claim arises from a Federal solicitation which is not a “procurement,” i.e. where the Federal solicitation concerns a sale, not an acquisition, or where a Federal solicitation concerns the lease of Federal real property, and not a Federal “procurement” of property or services.

©2010 Cyrus E. Phillips IV. All Rights Reserved.

Agredano arose from a purchase of a vehicle at a Customs Service auction of forfeited vehicles. The purchaser later took the vehicle to Mexico where he was stopped at a checkpoint, hidden marijuana was found in the vehicle, and the purchaser spent nearly a year in prison before being exonerated by the Mexican courts. The vehicle had been sold by the Customs Service “as is, where is” without warranty or guarantee and with express disclaimers as to identity, previous ownership, physical condition, or registration status.

The U.S. Court of Federal Claims held that despite the disclaimers, the sales contract for the vehicle contained an implied-in-fact warranty that the vehicle no longer contained contraband, that this implied-in-fact warranty was breached, and thus the purchaser was awarded substantial damages. The Federal Circuit reversed, looking to a prior Federal Circuit decision which holds that an Agency’s failure to perform regulatory or statutory functions does not create contractual obligations, either express or implied-in-fact.

Precision Pine arose from a U.S. Court of Federal Claims matter wherein a timber harvesting contractor had been awarded “jury verdict,” or judge-computed, damages resulting from the suspension of one of fourteen Forest Service contracts, suspensions required in order for the Forest Service to engage in Endangered Species Act consultations stemming from the endangered species listing of the Mexican Spotted Owl.

The U.S. Court of Federal Claims had held the Forest Service in breach of the implied duty of good faith and fair dealing, also termed the implied duty not to hinder and to cooperate.

But in Precision Pine the Federal Circuit limits the implied duty of good faith and fair dealing by defining it as just a “variation” of a bait-and-switch, i.e. where the Government enters into a contract that confers a significant benefit and then later eliminates or rescinds that provision or benefit through subsequent action directed at the existing contract, subsequent Government action “specifically designed to re-appropriate the benefits the other party expected to obtain.”

In the case before it, the Federal Circuit decides that there has been no breach of the implied-in-fact duty of good faith and fair dealing because all but one of the Forest Service contracts contained no guarantee that the timber harvesting contractor’s operations could proceed uninterrupted. The suspensions were due to Forest Service violations of the Endangered Species Act, but these were statutory duties not owed to the timber harvesting contractor, just as the purchaser of the seized vehicle in Agredano was owed nothing contractually by the Customs Service under the statutory duty to seize all contraband.

The Federal Circuit holds that the implied-in-fact duty of good faith and fair dealing “cannot expand a party’s contractual duties beyond those in the express contract or create duties inconsistent with the contract’s provisions.” Since all but one of the Forest Service contracts contained no guarantee of uninterrupted performance, the Forest Service’s violations of the Endangered Species Act did not destroy the timber harvesting contractor’s reasonable expectations.

As to the Forest Service contract which did not give the Forest Service the right to suspend performance, the U.S. Court of Federal Claims had rejected the methodology used by the timber harvesting contractor’s damages expert and instead constructed its own alternative calculation. This, the Federal Circuit holds, is entirely permissible—the U.S. Court of Federal Claims was not required to accept the timber harvesting contractor’s calculations in their entirety else enter judgment for the United States.

Here the Federal Circuit explains that in a “jury verdict” a judge may find for a party without fully crediting that party’s methodology, provided that the evidence is sufficient to allow the judge to make a “fair and reasonable approximation” of the damages.

The judge is the fact finder in a bench trial and may decide what evidence to credit or reject, and what result to reach. “Just as jury may find for a party without believing everything that party’s witnesses say, a judge may award damages, even if he does not fully credit that party’s methodology.” Fact findings by a trial judge may not be set aside unless they are clearly erroneous, and these fact findings which minimized the effect of uncertainty and arbitrary assumptions were not.

©2010 Cyrus E. Phillips IV. All Rights Reserved.

At issue in DMS All-Star was a proposed indefinite delivery, indefinite quantity task order Contract for maintenance, repair, and minor construction work on real property located at Fort Sill, Oklahoma. Firm fixed-price task orders were to be issued to the successful Contractor, and these would be priced based on agreed-upon mark-ups against published RSMeans Construction Cost prices. Offerors competed based on these mark-ups.

The Solicitation promised that Price Proposals would be evaluated for Price Reasonableness and for Price Realism.

Price Reasonableness looks at the Price to be paid (is the Government paying too much?), and Price Realism looks at the risk of a low-priced Proposal and whether or not an Offeror’s Price is overly optimistic or impractically low (is the Offeror asking too little?).

The question whether or not a Price is realistic concerns only an Offeror’s understanding of Solicitation requirements, because if an Offeror can demonstrate that it understands the requirement, that Offeror can nonetheless choose to offer a buy-in just to win the Competition for a firm, fixed-price Contract.

Price Realism was before the U.S. Court of Appeals for the Federal Circuit in Alabama Aircraft Industries, Inc. v. United States, Fed. Cir. Nos. 2009-5021, -5022, and -5023, November 17, 2009. The Alabama Aircraft Court reversed the U.S. Court of Federal Claims, holding that the Court below had overstepped its bounds when it rejected an Agency’s Price Realism analysis, not because this Price Realism analysis was inconsistent with Solicitation requirements, but instead because the Court below thought that the Agency did not expressly consider, as it should have, the impact of the aging KC-135 fleet in its Price Realism analysis.

The Alabama Aircraft Court held that this was an impermissible substitution of the Court’s judgment for the Agency’s, a substitution not allowed under the narrow “arbitrary and capricious” standard of review which is applied to Protests.

It is no surprise, then, that DMS All-Star pays careful attention to the limits of Protest review as it applies to Price Realism analysis.

If a Solicitation does not set out a particular methodology for the Price Realism analysis, then on a Protest review the only limitation is that the Agency’s Price Realism analysis must be demonstrated not to contain any critical miscalculations, and must not make any irrational assumptions. In these Solicitations, the Agency’s Price Realism analysis has little vulnerability to a challenge on “adequacy” grounds. The Agency has broad discretion.

If a Solicitation sets out a methodology for the Price Realism analysis, then the Agency must demonstrate that it has followed the announced evaluation criteria, this in addition to demonstrating that the Price Realism analysis does not contain any critical miscalculations, and does not make any irrational assumptions.

The message in DMS All-Star is a simple one—if an Offeror believes that the announced Price Realism analysis is incomplete or unspecific, then the time to challenge these announced evaluation criteria is before the date set for receipt of initial Competitive Proposals, not later.

©2010 Cyrus E. Phillips IV. All Rights Reserved.

It needs to be remembered that the proposed A-12 Avenger was to be a carrier-based stealth aircraft and was under development on a Navy fixed-price incentive Contract with a ceiling price of $4,777,330,294. The Contractors were to be design, manufacture, and test eight prototypes with the first aircraft to be delivered in June 1990 and the remaining seven to be delivered monthly through January 1991. The Contractors fell behind schedule and the Navy issued a unilateral Contract modification in August 1990 setting a new first aircraft delivery date of December 1991.

The Contractors thereafter experienced continuing problems meeting Contract performance requirements and schedule and their continued operations were running significantly over budget—they were spending some $120-$150 million of their own money each month. They projected in December 1990 that the first prototype aircraft would not be delivered until March 1992 and this only if there were significant changes in performance requirements. The then-Secretary of Defense, Dick Cheney, directed the Navy to demonstrate that the A-12 project was still viable.

The Navy issued a Cure Notice on December 17, 1990—a Cure Notice is a demand that the Contractor demonstrate or give assurances that progress is being made toward timely completion of the Contract, else that any prospective delay in Contract completion is not the Contractor’s responsibility. The Navy demanded assurance of Contract performance by January 2, 1991.

The Contractors responded on January 2, 1991 that they could not meet the delivery schedule or existing Contract performance requirements. They asserted that the delivery schedule was unenforceable and that performance requirements were “impossible to satisfy.” The Contractors proposed a restructured cost-reimbursement Contract, in exchange for which they would absorb a fixed loss of $1.5 billion and would waive their Contract Claims. The Contractors gave assurance of their commitment to the A-12 program.

On January 6, 1991 the Acting Under Secretary refused to agree to a restructured cost-reimbursement Contract. On January 7, 1991 the Navy Contracting Officer terminated the Contract for Default. A few weeks later, the Navy demanded the return of some $1.35 billion in unliquidated progress payments.

After several voyages between the United States Court of Federal Claims and the Federal Circuit, the Court of Federal Claims upheld the Default termination, this after having been directed by the Federal Circuit to “focus on the events, actions, and communications leading to the default decision in ascertaining whether the contracting officer had a reasonable belief that there was no likelihood of timely completion.”

Now a panel of the Federal Circuit affirms, holding that Default termination for failure to make progress is objectively justified. The Federal Circuit panel does not consider whether or not the Contractors’ response of January 2, 1991 to the Cure Notice was an adequate assurance of progress.

What?

The law in the Federal Circuit teaches that responses to Cure Notices are judged as a species of the law of anticipatory repudiation, i.e., whether or not the response to the Cure Notice reasonably supported a belief that the Contractor would not perform, in which circumstance the Contract can be treated as repudiated. Danzig v. AEC Corp., Fed. Cir. September 25, 2000, 2000 U.S. App. LEXIS 23731, *12-*14.

Restatement (Second) of Contracts § 251 comment e. explains that the “adequacy” of such an assurance “depends on what is reasonable to require in a particular case taking account of the circumstances of that case.” Restatement (Second) of Contracts § 251(2) provides that an “obligee may treat as a repudiation the obligor’s failure to provide within a reasonable time such assurance of due performance as is adequate in the circumstances of the particular case.” (Emphasis added).

It appears that A-12 Default has been reviewed by this panel based on the wrong standard. How is it that the Navy’s actions are affirmed without consideration of the questions about impossibility and Contract type which are raised in the Contractors’ assurance of January 2, 1991?

©2010 Cyrus E. Phillips IV. All Rights Reserved.

The first, Tip Top Construction, Inc. v. United States, Fed. Cir. No. 2008-5183, April 29, 2009, arose from a decision of the United States Court of Federal Claims which denied a challenge to a Contract awarded for construction of a traffic roundabout, this because the Contracting Officer had rejected as nonresponsible an individual surety for the otherwise low bidder who pledged marketable coal as a bid guarantee. The second, Axiom Resource Management, Inc. v. United States, Fed. Cir. No. 2008-5072, -5073, May 4, 2009 is a reversal of a decision of the United States Court of Federal Claims which had precluded the Army from exercising an option for renewed performance of a program management support Contract, there after the Court of Federal Claims concluded that the Army Contracting Officer had unlawfully failed to mitigate a potential organizational conflict of interest.

In both decisions the Federal Circuit applied, as required by 28 U.S.C. § 1491(b)(4), the Administrative Procedure Act standard of review set out in 5 U.S.C. § 706(2)(A). Generally, this review standard requires: (1) that the Court look only at the record (the facts) as they were before the Contracting Officer, Florida Power & Light Company v. Lorion, 470 U.S. 729, 743-744 (1985); and (2) that the reviewing Court judge the Contracting Officer’s actions solely by the grounds invoked by the Contracting Officer, and not by substituting what the Court considers to be a more adequate, or a better, basis, OMV Medical, Incorporated v. United States, 219 F.3d 1337, 1344 (Fed. Cir. 2000) (applying SEC v. Chenery Corporation, 332 U.S. 194, 196 (1947)).

This Administrative Procedure Act standard of review is narrow, this reflecting a concern that Courts not interfere with matters entrusted to the judgment of Contracting Officers. A different regime prevails under the Contract Disputes Act, 41 U.S.C. §§ 601-613. There a de novo standard of review is imposed, 41 U.S.C. § 609(a)(3), and the Court conducts an independent examination of the relevant facts.

The problem with Axiom Resource Management, per the Federal Circuit, was that the Court below admitted extra-record evidence, freely allowing the parties to supplement the record “with whatever they want,” without first making a threshold determination whether this extra-record evidence was necessary. Doing so, the Court of Federal Claims admitted the declarations of two expert witnesses, and then the Court relied on these declarations to conclude that the Contracting Officer’s efforts to mitigate a potential organizational conflict of interest were unreasonable. This, the Federal Circuit observed, was de novo review, not Administrative Procedure Act review, and was “inconsistent” with the discretion given the Army Contracting Officer and with administrative law principles.

The Federal Circuit’s affirmance in Tip Top Construction is less obvious than the Federal Circuit’s reversal in Axiom Resource Management.

The Tip Top Construction Contracting Officer had rejected the proffered individual surety as nonresponsible because, reasoned the Contracting Officer, marketable coal was a “speculative” asset, this per Federal Acquisition Regulation 28.203-2(c). But other, nonetheless acceptable assets which may be pledged by individual sureties are likewise “speculative,” i.e., stocks and bonds traded on national U.S. security exchanges or real property owned in fee simple, Federal Acquisition Regulation 28.203-2(b).

This reality was enough of a problem for the Court of Federal Claims that the Court expressly found the Contracting Officer’s nonresponsibility determination reasonable not on the grounds invoked by the Contracting Officer, but rather because assets pledged by an individual surety, whether or not “speculative,” must, per Federal Acquisition Regulation 28.203-1(b), be secured by deposit into an escrow account, else secured by a recorded lien on real property. And a pile of coal, although it has a readily ascertainable value, cannot be deposited into escrow.

The Federal Circuit explicitly ignores this disconnect, simply holding in Tip Top Construction that the Contracting Officer’s nonresponsibility determination “is sustainable on the ground articulated by the contracting officer—namely, that the pledged coal was not the type of asset that is acceptable under the FAR as a bid bond asset.” Yet in OMV Medical, the Federal Circuit returned a price reasonableness determination to the Court of Federal Claims for further proceedings, an express recognition of the rule in Chenery, when it turned out that the Court below in fact had affirmed that price reasonableness determination on a ground not considered by the Contracting Officer.

The affirmance in Tip Top Construction appears to be a bow to practicality rather than an acknowledgment of administrative law principles. Axiom Resource Management, on the other hand, demands “by the book” adherence to the narrow Administrative Procedure Act standard of review.

©2010 Cyrus E. Phillips IV. All Rights Reserved.

Eligibility requirements for SDVOSBC’s were established by the Small Business Administration (SBA) in 2004 in Service-Disabled Veteran-Owned (SDVO) Small Business Concern (SBC) Program Rules at 13 Code of Federal Regulations (CFR) Subparts A and B (13 CFR §§ 125.8 through 125.13—Definitions and Eligibility Requirements) and in Subpart C (13 CFR §§ 125.14 through 125.23—SDVO Contracts). Subpart D of the SBA SDVOSBC Program Rules (13 CFR §§ 125.24 through 125.28) sets out Protest procedures allowing Contracting Officers and other Offerors competing for specific SDVOSBC Contracts to challenge the status of particular SDVOSBC’s.

In May 2008 the Department of Veterans Affairs’ (VA’s) Center for Veterans Enterprise (CVE) published interim verification guidelines which permit (but do not require) VA Contracting Officers to set-aside particular VA acquisitions if there are available SDVOSBC’s listed as “verified” in the VetBiz.gov Vendor Information Pages (VIP) database. These CVE interim verification guidelines, which largely parallel the SBA Program Rules, explicitly provide for SDVOSBC status verification and then listing by VA’s CVE in the VetBiz VIP database.

But neither the CVE interim verification guidelines nor the CVE itself give VA the final authority to determine SDVOSBC status. Instead, challenges to SDVOSBC status, either by a Contracting Officer or by another Offeror, are decided only by SBA. Singleton Enterprises-GMT Mechanical, A Joint Venture, B-310552, January 10th, 2008, at 3.

It turns out that there are presently 47 published decisions from SBA’s Office of Hearings and Appeals (OHA) which apply the SBA SDVOSBC Program Rules in deciding challenges to SDVOSBC status. Many of these published OHA decisions concern one particular aspect of the eligibility requirements for the SDVOSBC Program, and this particular aspect is the “control” requirement.

The “control” requirement is explained at 13 CFR § 125.10.

The “control” requirement demands: (1) that long-term decision-making and day-to-day management of the enterprise both must be conducted by one or more service-disabled veterans, 13 CFR § 125.10(a); (2) that a service-disabled veteran hold the highest officer position in the enterprise and that this service-disabled veteran have managerial experience of the extent and complexity needed to run the concern, else possess ultimate managerial and supervisory control over those who possess the required licenses or technical experience, 13 CFR § 125.10(b); and (3) that one or more service-disabled veterans have control over all decisions of the enterprise, this control including the ability to overcome any supermajority voting requirements for decisions otherwise made in the normal course of business, 13 CFR § 125.10(c), (d), (e).

Challenges to required “control” for SDVOSBC status often concern geography—that is, the qualifying service-disabled veteran is located at a site remote from the place of business and/or from the site of Contract performance. If the qualifying service-disabled veteran is located at a site remote from the place of business and from the site of contract performance, then it is likely that SBA will find a lack of “control.” If the service-disabled veteran is proximate to the place of business, then the question becomes whether or not the Contract in question requires intense on-site supervision. See, e.g., Matter of NuGate Group, VET-132, April 24, 2008, at 7.

Supermajority restrictions on business decisions, while common in the operating documents for any private enterprise, including SDVOSBC’s, have an effect on the required “control” for SDVOSBC status which is not as easily resolved. This difficulty stems from the difference between supermajority restrictions limited to circumstances outside the normal course of business (e.g., changes to the operating documents, issuing additional capital stock, or entering into a different line of business) and supermajority provisions not so limited (e.g., appointment and compensation of officers, limits on making other than nominal expenditures, or borrowing money for operations).

OHA has in the past, Size Appeal of EA Engineering, Science, and Technology, Inc., SIZ-4973, July 14, 2008, at 9, made a distinction between supermajority restrictions limited to circumstances outside the normal course of business and supermajority restrictions not so limited, there holding that supermajority restrictions which could be imposed in only three “extraordinary” circumstances outside the normal course of business were insufficient to prove affiliation.

But as regards the SBA SDVOSBC Program Rules, OHA has construed the “all decisions” language of 13 CFR § 125.10(c), (d), (e) strictly, holding that “any specified decisions requiring a supermajority that the [service-disabled veteran] could not himself satisfy” render an enterprise ineligible for status as an SDVOSBC. Matter of Heritage of America, LLC, VET-142, November 12, 2008, at 8 (emphasis added).

The problem with Heritage of America is that the supermajority restrictions there included both circumstances outside the normal course of business and circumstances within the normal course of business (i.e., making other than nominal expenditures or borrowing money). In a previous decision, Matter of Firewatch Contracting of Florida, LLC, VET-137, August 1, 2008, at 8, OHA had distinguished EA Engineering as applying only where supermajority restrictions were expressly limited to circumstances outside the normal course of business.

Heritage of America could have been more narrowly decided. Unfortunately, it was not.

We’re going to have to wait for future OHA decisions to see if the sensible distinction between supermajority restrictions limited to circumstances outside the normal course of business and supermajority restrictions not so limited, the distinction which was the focus of EA Engineering, will ever be applied to a challenge of SDVOSBC status.

©2010 Cyrus E. Phillips IV. All Rights Reserved.

But the ADRA left unresolved the question whether the Implied-in-Fact Contract theory of Protest jurisdiction had survived, and on this question there has been neither unanimity nor a definitive ruling from the Court’s supervisory authority, the United States Court of Appeals for the Federal Circuit.

Perhaps this question is now resolved by FFTF Restoration Company, LLC v. United States, Fed. Cl. No. 07-659C, Judge Nancy B. Firestone, March 2nd, 2009, a Protest arising from the Department of Energy’s cancellation of a small-business set-aside Solicitation for deactivation and decommissioning of a nuclear reactor at the Hanford Site. Here Judge Firestone concludes that the Implied-in-Fact Contract theory of Protest jurisdiction survives the ADRA by “fitting within the ambit of the requirements to act with integrity, fairness, and openness, and to treat bidders fairly,” these imposed by Federal Acquisition Regulation 1.102(b)(3) and 1.102-2(c)(3).

Judge Firestone says that FFTF’s claims of breach of an implied-in-fact Contract and FFTF’s assertions of violations of the Federal Acquisition Regulation are “virtually indistinguishable.” Noting that the ADRA does not limit the theories under which violations are claimed, Judge Firestone concludes that claims of breach of an implied-in-fact Contract are permissible under ADRA.

©2010 Cyrus E. Phillips IV. All Rights Reserved.

In Osborne Construction Company, ASBCA No. 55030, February 19th, 2009, the Armed Services Board of Contract Appeals points out the flexibility afforded Agency Boards with the Rule 4 Appeal File, a flexibility which stems from Agency Board ability to rely on the Rule 4 documents and from the discretion given Agency Boards to weigh this documentary evidence.

A decision on a motion, or cross-motions, for Summary Judgment before the Court of Federal Claims is often thought comparable to a Record Submission before an Agency Board. But a decision on Summary Judgment does not allow for a creditability assessment and there the record itself can be later enlarged or changed before the Civil Action is ready for decision.

Indeed, the Court of Federal Claims recognizes this limitation on Summary Judgment—while Contract Disputes Act Claims sometimes obtain Summary Judgment on liability, damages determination requires detailed factual inquiries and credibility determinations. See, e.g., Travelers Casualty and Surety Company of America v. United States, 75 Fed. Cl. 696,724 (2007).

©2010 Cyrus E. Phillips IV. All Rights Reserved.

Actions of the local Postmistress were the basis of the bad faith termination: (1) route changes were unilaterally imposed which disproportionately benefitted another carrier and these route changes were made on a pretext which could not be supported; (2) the local Postmistress unreasonably “wrote up” the carrier on Contract performance issues and demanded that supervisory Postal Service contracting personnel terminate the carrier’s Contract when he refused to perform unilateral changes which were not allowed by the Changes Clause (only Changes up to $2,500 could be unilaterally imposed). The Court held that these actions were a “contrivance” effected to deprive the carrier of his reasonable Contract expectations and thus amounted to an “obvious violation” of the duty of good faith and fair dealing.

Although the local Postmistress was not the Contracting Officer, the Court found that supervisory contracting personnel had relied almost exclusively on the representations of the local Postmistress and had disregarded clear Contract language. More to the point, the Court concluded that these supervisory contracting personnel had failed to make decisions that were the product of their own personal, informed, and independent judgment.

Keeter Trading importantly emphasizes that beyond animus, bad faith can also result from a combination of actions destroying a Contractor’s bargained-for rights together with a failure of independent decision-making.

©2010 Cyrus E. Phillips IV. All Rights Reserved.