When filing a government contract claim based upon breach of express contract terms, there is a specific legal analysis that the courts use to validate such claims. First, deciding an express Breach of Contract Claim requires an interpretation of a government contract which is a question of law, reviewed de novo. See Forman v. United States, 329 F.3d 837, 841 (Fed. Cir. 2003); Interstate Gen. Gov’t Contractors, Inc. v. Stone, 980 F.2d 1433, 1434 (Fed. Cir. 1992).
To interpret government contract, courts look at the expressed contract terms and the actual language of the contract. NVT Techs., Inc. v. United States, 370 F.3d 1153, 1159 (Fed. Cir. 2004).
Prime contractors that pursue an appeal of the contracting officer’s final decision in violation of the expressed contract terms should understand that they cannot use an implied duty of good faith and fair dealing to “expand [another] party’s contractual duties beyond those in the express contract or create duties inconsistent with the contract’s provisions.” See Metcalf Constr. Co. v. United States, 742 F.3d 984, 991 (Fed. Cir. 2014).
However, a “breach of the implied duty of good faith and fair dealing does not require a violation of an express provision in the contract.” Id. at 994. The government could breach its implied duty by interfering with another party’s performance or acting in such a way as to destroy the reasonable expectations of the other party regarding the benefits provided by the contract.
Express Contract Versus Implied Contract in Federal Contracting
If you are alleging either an express contract or implied-in-fact contract with the federal government, you must show a mutual intent to contract including an offer, an acceptance, and consideration. See Russell Corp. v. United States, 210 Ct. Cl. at 608 (“For there to be an express contract, the parties must have intended to be bound and must have expressed their intention in a manner capable of understanding. Therefore, unless there are facts to support privity and an agreement between the government and the subcontractor, claims directly filed by subcontractor will be denied.
Alternatively federal Implied-in-fact contracts are agreements “‘“founded upon a meeting of the minds, which, although not embodied in an express contract, is inferred, as a fact, from conduct of the parties showing, in the light of the surrounding circumstances, their tacit understanding.”’” Trauma Serv. Grp. v. United States, 104 F.3d at 1325 (quoting Hercules, Inc. v. United States, 516 U.S. 417, 424 (1996) (quoting Balt. & Ohio R.R. Co. v. United States, 261 U.S. 592, 597 (1923)).
Also, when considering express vs implied contract legal requirements, the elements of a binding contract with the United States are identical for express and implied in fact contracts. See Night Vision Corp. v. United States, 469 F.3d 1369, 1375 (Fed. Cir. 2006) (“The elements of an implied-in-fact contract are the same as those of an oral express contract.”), cert. denied, 550 U.S. 934 (2007).
“Like an express contract, an implied-in-fact contract requires ‘(1) mutuality of intent to contract; (2) consideration; and, (3) lack of ambiguity in offer and acceptance.’ . . . When the United States is a party, a fourth requirement is added: The government representative whose conduct is relied upon must have actual authority to bind the government in contract.” See City of El Centro v. United States, 922 F.2d 816, 820 (Fed. Cir. 1990))
Government contractors that pursuing an appeal to entitlement to an equitable adjustment must prove that the contract was modified by someone with actual authority. When you contract with the federal government , apparent authority of the government’s agent to modify the express terms of a contract is not sufficient. Instead, the agency (usually the contracting officer representative) must have actual authority to bind the government. See Trauma Serv. Group v. United States, 104 F.3d 1321, 1325 (Fed. Cir. 1997).
Actual authority to change the express contract terms can be express or implied from the authority granted to that agent. This is a very fact-specific issue and can be somewhat of a risk if your case is not well prepared with sufficient facts. Courts also look to see whether the implied contract terms actually would lead to a ratification of the contract. The general rule of thumb for contractors is not to proceed with contract modifications unless the contracting officer approves the change.
Is There Privity?
Third party beneficiary subcontractor claims: Many federal contractors, especially subcontractors make the mistake of appealing contracting officer claim denial by arguing that they are third party beneficiaries to the contract. This legal approach can be problematic. In response, the government will file a motion to dismiss for lack of subject matter jurisdiction and for failure to state a claim upon which relief might be granted, pursuant to Rule 12(b)(1) and Rule 12(b)(6) of the Rules of the United States Court of Federal Claims (RCFC) (2014).
If you are a subcontractor, the government will argue that the court lacks subject matter jurisdiction to hear your claims for relief, because you are not in contract privity with the government, either through an express contract or implied-in-fact contract. There are ways to accomplish this result. However, success will depend on the expressed terms of the prime subcontract agreement.
As stated in the Tucker Act, privity of contract between a plaintiff and the United States government is required to bring a cause of action in the United States Court of Federal Claims for express and implied contracts. See Cienega Gardens v. United States, 194 F.3d 1231, 1239 (Fed. Cir. 1998) (“Under the Tucker Act, the Court of Federal Claims has jurisdiction over claims based on ‘any express or implied contract with the United States.’ 28 U.S.C. § 1491(a)(1) (1994).
On the issue of subject matter jurisdiction and to hear express contract claims on appeal, courts have an independent obligation to determine whether subject-matter jurisdiction exists, even when no party challenges it. See Arbaugh v. Y & H Corp., 546 U.S. at 514; Avid Identification Sys., Inc. v. Crystal Import Corp., 603 F.3d 967, 971 (Fed. Cir.) (“This court must always determine for itself whether it has jurisdiction to hear the case before it, even when the parties do not raise or contest the issue.”)
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