Breach of Good Faith and Fair Dealing Standard
In a recent decision, Metcalf Construction Company v. United States, the Federal Circuit appeared to relax the standard needed to find a breach of covenant of good faith and fair dealing with government contracts. Metcalf involves a construction contract claims between the federal government and a private company that was engaged to design and build military housing; soil problems at the building site caused delays and increased construction contract claims prices, and Metcalf was not paid for total cost of construction even though the contract did not state that Metcalf was to bear the risk of significant errors in the pre-contract government assertions about the site conditions. The case was remanded for further proceedings.
“Every contract imposes on each party a duty of good faith and fair dealing in its performance and enforcement.” Restatement (Second) of Contracts § 205. Failure to fulfill this duty will constitute a breach of contract.
These principles also apply to contracts with the federal government. Implied in these duties also include the duty not to hinder and the obligation to cooperate; a party’s contractual duties cannot be expanded beyond the express contract nor create duties inconsistent with the contract. Both the government and performing companies must show good faith in contracts at all times.
No Specific-Targeting Requirement in Construction Contract Claims
The trial court in Metcalf misread precedent, specifically Precision Pine, to state that unless the government specifically targeted action to get the benefit of the contract, there is no breach of covenant of good faith and fair dealing. However, the Federal Circuit noted that to find a breach, there need not be a violation of an express provision in the underlying contract and further noted that the government’s argument went too far.
The breach, however, does need to be connected, though not limited, to the bargain struck in the contract. An act will not be found to violate the duty if it would be at odds with the terms of the original bargain. To determine if there was a breach of good faith contract on construction projects, there needs to be a correct understanding of the contract.
Breach of Covenant of Good Faith and Fair Dealing – Implied-in-fact Contracts: If you do not have an express contract with the government, the covenant of good faith and fair dealing in construction contract claims can attach at the start of an implied-in-fact contract with the government. The implied duty applies to every contract. For example, in Centex v. United States, the covenant was applied to a payment provision that was not in the express contract.
Good Faith in Contracts Presumption: Something that is important to remember, however, is that when dealing with government contracts, government officials are presumed to demonstrate good faith in contracts when dealing with large and small businesses. Contracting officers must act in good faith in the discharge of their duties. Morris v. United States. This presumption requires “well-nigh irrefragable proof” to the contrary to be abandoned. Knotts v. United States.
- Claims against the federal government for breach of good faith contract and fair dealing in construction contracts are now less restrictive and do not need to be specifically targeted
- However, claims still need to get over the good faith presumption for government officials.
If you are concerned the government committed a breach of covenant of good faith and fair dealing, please call our construction contract claims and dispute lawyers at 1-866-601-5518 for a free consultation.