Government Contracts Government Did Not Change Contract or Breach Good Faith Duty
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Thursday, January 7, 2021

Government Did Not Change Contract or Breach Good Faith Duty

By Government Contracts Editorial Staff

Appeals seeking additional compensation under a requirements contract were denied by the Armed Services Board of Contract Appeals because the government did not constructively change the terms of the contract or breach the implied duty to cooperate. The dispute arose from a contract to supply fresh fruits and vegetables to military commissaries in Japan and South Korea. According to the contractor, the government did not give it enough time to prepare for performance and establish local sources of produce, and the government’s direction to proceed without enough time to secure local sources, in-country personnel, and necessary logistics was a compensable change to the method and manner of performance.

No Constructive Change. The government admitted the time for startup was compressed due to bid protests by the incumbent contractor, but the government had already compensated the contractor for the shortened start-up period and the difficulties the contractor encountered in getting its products through the inspection process. The contract did not include a transition period for the startup of the contract, and in the absence of a transition period, the contractor was expected to perform on the date identified at contract award. Also, from the beginning, the contractor was on notice that sourcing local produce was crucial to successful contract performance, but the contractor provided no detail about the efforts it undertook to establish contracts with local growers. The contractor contended that the government constructively changed the contract when it refused to accept produce for the fixed prices the contractor proposed. However, the government possessed discretion under the contract to review produce prices on a weekly basis and to reject items offered at unreasonable prices. Moreover, the “free on board” destination delivery contract requirement was an express term of the contract, and the obligation to comply with it could not be a constructive change. Finally, weekly pricing meetings did not constitute a constructive change. In particular, the price review was one of the primary pricing mechanisms set forth in the contract, and the government conducted its price reviews in a fair and reasonable manner consistent with the express terms of the contract.

Duty to Cooperate. The contractor further alleged the government breached its duty to cooperate with performance by failing to ensure that its Status of Forces Agreement representatives and veterinarian inspectors were adequately prepared for a new contract model. According to the contractor, this created prolonged confusion over the importing process under the contract. Pursuant to the implicit duty of good faith and fair dealing, each party’s obligations “include the duty not to interfere with the other party’s performance and not to act so as to destroy the reasonable expectations of the other party regarding the fruits of the contract” (Metcalf Construction Co. v. U.S., CA-FC, 58 CCF ¶80,262). Here, the contractor could not rely on the implied duty of good faith and fair dealing to change the terms of its contractual requirements. The contract expressly placed all responsibility for import on the contractor, including providing all necessary licenses and permits. Also, the contract made it solely the contractor’s responsibility to determine reporting and payment responsibilities under host nation laws. The record demonstrated the contractor’s financial losses resulted predominantly from factors within its control, rather than from government conduct. With respect to the contractor’s failure to coordinate with SOFA representatives, the contract expressly stated that it was not subject to SOFA. Finally, the weekly pricing review was reasonable and consistent with contract terms. (MPG West, LLC, ASBCA, ¶96,172)

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