Recently, the CFC rejected a bid protest action filed by Kellogg Brown & Root (KBR) with respect to one of the Army’s LOGCAP contracts. The contractor had performed the logistics and civil augmentation contract, under which the Army issued task orders for different years, on a “cost-reimbursement basis.” When the Army tried to change to a firm-fixed price arrangement for the 2013 close-out period, KBR balked and refused to submit a proposal—instead filing a bid protest action. The CFC dismissed the case, ruling that KBR did not properly invoke the court’s bid protest jurisdiction but rather was attempting to litigate a contract administration dispute.
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Legal SettlementIn a recent decision, the Federal Circuit added to its precedent explaining how a trial court should analyze what would have occurred in a “non-breach world” for purposes of awarding expectancy damages in a contract case. In Stockton East Water District v. United States, the Federal Circuit held that the trial court failed to sufficiently consider the parties’ conduct during the six years leading up to the breach when awarding damages for the breach period. The Federal Circuit and Court of Federal Claims issued numerous decisions addressing expectancy damages and the non-breach world in the Winstar cases; Stockton East adds to that precedent with guidance for contractors presenting damages claims in the tricky situation of the Government announcing what is likely to happen several years before its conduct constitutes a breach of contractual obligations. The Federal Circuit’s decision makes clear that the contractor can point to the parties’ conduct during the pre-breach period to explain what the non-breach world would have looked like—and how expectancy damages should be measured.
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Tajik

The Court of Federal Claims issued a lengthy decision in a case arising from a construction project gone awry in which the contractor was terminated for default (T for D), ended up in bankruptcy, and lost a fraud counterclaim to DOJ. The contractor had taken a substantial risk by agreeing to a firm-fixed price that was substantially lower than it had originally proposed—then (after a few problems) lacked the necessary liquidity to complete the project. The decision in Liquidating Trustee Ester Du Val of Ki Liquidation, Inc. v. US is a reminder that contractors agreeing to a firm-fixed price are accepting substantial risk, and when entering into this type of contract in unpredictable circumstances, they must be able to bear that risk, as a lifeline is unlikely to be forthcoming from the agency.


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“Lost profits” are a standard measure of contract damages and, under long-standing precedent, are available as a basis for a judgment against the Government in a breach of contract case. That said, there aren’t that many cases in which a Government contractor actually demonstrates to the Court of Federal Claims or a Board of Contract Appeals that the various elements of a lost profits award have been satisfied under the applicable standards of proof—and then can get such an award affirmed on appeal. In last week’s SUFI Network Services v. US decision, another “lost profits” plaintiff had the vast majority of its lost profits award gutted by the Federal Circuit—and sent back for substantial additional determinations in a long-running lawsuit. The court’s opinion is instructive regarding the level of scrutiny that is given to such awards and the approach that Government contracts plaintiffs should consider in structuring claims for lost profits.


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The U.S. Court of Federal Claims recently issued a decision that addresses the ever-perplexing question of how to manage risk in a contract with the Government. The DMS Imaging, Inc. v. United States case turned on the inclusion of a risk of loss provision in a lease form for medical equipment. After the equipment was damaged, the Government cited both a failure to agree to the lease terms as well as a purported lack of authority—and refused to pay. The case emphasizes the importance of ensuring express agreement with the Government on risk and loss-related clauses, which are a critical aspect of commercial contracts.
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So far this year, the U.S. Court of Appeals for the Federal Circuit has issued opinions in four cases—one per month—involving the implied duty of good faith and fair dealing. The opinions are: Bell/Heery, Metcalf Construction (about which we have previously blogged), Century Exploration, and Lakeshore Engineering. The Federal Circuit obviously

Under the Contract Disputes Act, contractor claims submitted to contracting officers (CO) must set forth a clear and unequivocal statement that gives the CO adequate notice of the basis and amount of the claim. This requirement prohibits contractors from raising new claims in court that were not first presented to the CO. In the Affiliated Construction Group v. United States case issued last week, the Court of Federal Claims held that the contractor’s new articulation of a claim in litigation was based on different operative facts from those on which the claim presented to the CO was based. Although the court observed that the case presented a very close question, the court dismissed the claim for lack of subject matter jurisdiction. The case provides a helpful reminder to contractors that they (and counsel) must carefully assess all of the facts in preparing CDA claims—and carefully craft all theories of recovery based on the relevant facts.
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Fraud_17860840MediumIn parallel decisions published yesterday in Eyak Services, LLC and Eyak Technology, LLC, the ASBCA denied the sister companies’ motions for summary judgment or dismissal and the government’s cross-motion for summary judgment. By distinguishing situations in which fraud was conducted by an appellant contractor as opposed to a subcontractor, the ASBCA was able to maintain jurisdiction. The decisions mean that the parties will continue to litigate the question of whether Eyak owes the government more than $32 million in overpayments for contracts that were allegedly tainted by fraudulent subcontracts.

The dispute raises interesting jurisdictional questions during a time of increasing fraud counterclaims and investigations. These questions should be of particular concern for contractors given that the Mandatory Disclosure Rule requires disclosure to Inspectors General of every overpayment. The decision also reminds contractors that they can be significantly affected by a subcontractor’s misconduct.


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Contract & Gavel_1424126LargeThe Federal Circuit has long recognized that the “duty of good faith and fair dealing in [the] performance and enforcement” of a contract, as described in the Restatement (Second) of Contracts, applies to agreements with the Government. The application of that rule in specific cases can be difficult, and the court’s 2010 ruling in Precision Pine & Timber, Inc v. United States, made its application more difficult because the court’s language discussing the duty resulted in some confusion in subsequent cases. The Federal Circuit’s recent decision in Metcalf Construction Co. v. United States clarifies the law regarding when a claim of breach of the duty of good faith and fair dealing can be presented—and is potentially helpful for government contractors aggrieved by adverse decisions of a contracting officer during performance.
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