David Adelstein | Florida Construction Legal Updates
An interesting opinion on a motion to dismiss came out of the United States Court of Federal Claims dealing with the claim that the government breached its duty of good faith and fair dealing in administering the prime contract. The contractor’s argument was that the government breached its duty of good faith and fair dealing by denying the contractor’s claim under the Contract Disputes Act (CDA). This was a creative claim and argument that deserves consideration because it tied in the contracting officer’s denial of the CDA claim for additional money with a breach of the duty of good faith and fair dealing.
In this case, Aries Construction Corp. v. U.S., 2023 WL 2146598 (Fed. Cl. 2023), a prime contractor was hired for a water pipeline construction project. The contractor encountered unexpected difficult site conditions that required additional equipment and labor. The contractor informed the contracting officer and alleged it was instructed to proceed with the additional equipment and labor. The contractor submitted a claim under the CDA but the contracting officer denied the claim. The contractor pursued the claim in the United States Court of Federal Claims arguing the government breached the contract and, of interest, breached its duty of good faith and fair dealing.
The government moved to dismiss the breach of good faith and fair dealing claim arguing that besides failing to state a cause of action the Court of Federal Claims had no jurisdiction because the breach of the duty of good faith and fair dealing was not properly presented to the contracting officer under the CDA. The Court of Federal Claims denied the government’s motion.
Jurisdiction
For a CDA claim to the contracting officer to be ‘the same’ as a claim in this Court, the claims must be based on the same basic theory, arise from the same operative facts, and seek the same relief. By the same token, this Court ‘treat[s] requests as involving separate claims if they … assert grounds that are materially different from each other factually or legally. [The government] does not appear to dispute that [the contractor] presented the same operative facts to the contracting officer and sought the same relief. The question, rather, is whether [the contractor] presented the same basic legal theory to the contracting officer.
Aries Construction, supra, at *2 (internal citations omitted).
The Court of Federal Claims held that it has jurisdiction if the claim in the Court arises from the same operative facts and claims basically the same relief as the CDA claim submitted to the contracting officer even if different legal theories of recovery are sought by the contractor. Id. (quotations omitted). “If the contracting officer was on notice of the factual and legal substance, the contractor may assert a ‘slightly different legal theory[y] when he sues.” Id.
Breach of Duty of Good Faith and Fair Dealing
For purposes of a breach of good faith and fair dealing claim against the government, the contractor must show:
[T]hat ‘a specific promise’ in the contract was ‘undermined by the government. The promise must be grounded in the terms of the contract, because ‘what the duty entails in part on what the contract promises (or disclaims). [The contractor] must also show ‘subterfuge[]’ or ‘evasion[],’ such as ‘evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, [or] interference with or failure to cooperate in the other party’s performance. Against the government, such claims ‘typically involve some variation on the old bait-and-switch’ or ‘government action … specifically designed to reappropriate the benefits the other party expected to obtain from the transaction[.]’
Thus, a claim for breach of good faith and fair dealing must include (1) a specific promise that was undermined, plus some combination of (2) subterfuge, evasion, or dishonesty, and (3) reappropriation of a reasonably expected benefit. If the [contractor] presented such facts to the contracting officer with a claim for money, then the contracting officer had sufficient notice of a good faith and fair dealing claim, even if the current legal packaging is ‘slightly different.”
Aries Construction, supra, at *3.
Denying Government’s Motion to Dismiss
The contractor’s CDA claim was premised on an equitable adjustment due to it being instructed to perform additional work to overcome unexpected site conditions. “The contracting officer was therefore on notice that if he denied an equitable adjustment to which [the contractor] was entitled, [the contractor] could allege that the government reappropriated the contract’s promised benefits. That, in turn, meant the contracting officer was on notice of the facts and general legal basis that could support a claim for breach of duty of good faith and fair dealing.” Aries Construction, supra, at *3.
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