Avoid Landmines When Asserting Breach of Good Faith Contracts
The government sometimes refers to the expressed contract clauses during litigation in order to eliminate any other contract remedies to businesses that exercise their rights to a breach of implied covenant of good faith & duty of fair dealing.
Contract Management – What is the Implied Covenant of Good Faith Contract and Duty of Fair Dealing?
When it comes to analyzing breach of good faith contracts, the implied covenant of good faith and fair dealing is a common law principle which suggests that every contract imposes upon each party a duty to cooperate in good faith and deal with each other fairly. Federal contractors should incorporate this legal theory during contract management and dealing with the federal government.
The legal doctrine applies both to commercial contracts and federal government contracts. The short explanation of the common law contract theory is that each contracting party has an affirmative legal obligation not to hinder performance or prevent the other party from obtaining the fruits of the bargain. See Precision Pine & Timber, Inc. v. United States, 596 F.3d 817, 820 n.1 (Fed. Cir. 2010); Centex Corp. v. United States, 395 F.3d 1283, 1304 (Fed. Cir. 2005)
When parties enter a contract, they each expect the other to act faithfully and above board. The contract does not have to expressly state this requirement.
- When the government does something that on its face suggests under-handed activity, this can give rise to a breach of good faith and fair dealing.
- A breach of this duty can occur when there is a termination for default or even denial of a contract claim.
Although not all misbehavior is considered a violation of the covenant of good faith and fair dealing, when the government’s actions are “specifically targeted at the contractor contractual rights then there can be a breach. See First Nationwide Bank v. United States, 431 F.3d
1342, 1350–51 (Fed. Cir. 2005).
Duty of Fair Dealing in Your Contract Management Approaches? Watch for Mistakes Made By the Government: When appealing a Contract Disputes Act case because of an adverse contracting officer’s final decision, the government may attack your claim for breach of the implied duty of fair dealing by assuming that such a claim “is limited to ensuring compliance with the express terms of the contract and, thus, does not create obligations not contemplated in the contract itself.”
The U.S. Court of Federal Claims rejected this argument in the case of MANSOOR INTERNATIONAL DEVELOPMENT SERVICES, INC. V. U.S because the government’s position would eliminate any possibility that breach of the implied covenant of good faith could itself provide the basis for a claim that a contract was breached.
- The court stated that the implied covenant of good faith and fair dealing in government contracts stems from the consensual terms reflected in an expressed contract, but it addresses the parties’ reasonable expectations that may not have been embodied in explicit contractual language.
Scope Changes and Claims: Oftentimes, during the contract management phase, the government contracting agency directs contractors to perform additional work. It also orders contractors to do something that would require a change order of amendment to the contract. When the contractor submits a claim, the agency may deny the claim and assert that the contract never included this level of work.This could be a possible breach of good faith rule.
Contractors must be aware of some critical mistakes made when they seek to allege breach of the implied covenant of good faith and duty of fair dealing.
- Never take orders from the COR or COTR when performing the contract.
- Always seek written permission from the contracting officer before proceeding with scope changes.
Your implied covenant of good faith and fair dealing claim is only as good as you have documentation to prove your case. Taking direction from another government employee can severely harm your case on appeal.
Get help understanding the convenant of good faith and fair dealing, contract management or litigating your breach of good faith contracts or duty of fair dealing claim or argument, call our government contract claims and dispute lawyers at 1-866-601-5518 for a FREE INITIAL CONSULTATION.