Monday, March 10, 2014

Score One For the Contractors - Federal Circuit Rejects “Specific Targeting” Requirement In Good Faith and Fair Dealing Claims Against the Government

In Metcalf Construction Co., Inc. v. United States, 2014 WL 51956 (Fed. Cir. 2014), the U.S. Court of Appeals for the Federal Circuit considered the scope of the federal government’s duty of good faith and fair dealing to a private contractor engaged to design and build military housing.  The case involved claims by the contractor against the government for differing site conditions and associated delays and the government’s assessment of liquidated damages against the contractor.  In addition to claiming the government’s material breach of specific contract provisions, the contractor claimed that the government’s actions breached the government’s implied duty of good faith and fair dealing under the contract.

Interpreting the Federal Circuit’s prior decision in Precision Pine & Timber, Inc. v. United States, 596 F.3d 817 (Fed. Cir. 2010), the trial court had held that a breach of the government’s duty of good faith and fair dealing could only be established by a showing that the government “specifically designed to reappropriate the benefits [that] the other party expected to obtain from the transaction, thereby abrogating the government’s obligations under the contract” - in short, “specific targeted action” against the contractor, regardless of any incompetence and/or failure to cooperate or accommodate a contractor’s requests.  The Federal Circuit, however, held that the trial court’s view of its Precision Pine decision was “unduly narrow” and that the trial court had misread the decision.  The Court clarified that its prior decision in Precision Pine did not purport to define the scope of good faith and fair dealing claims for all cases, let alone alter prior standards, and that the Precision Pine decision did not hold that the absence of specific targeting, by itself, would defeat a claim of breach of the implied duty.  Instead, the Court stated that the “specific targeting” language of the Precision Pine decision on which the trial court relied only meant that the implied duty of good faith and fair dealing depends on the parties’ bargain in the particular contract at issue.

Accordingly, the Metcalf decision clarifies that the government’s duties of good faith and fair dealing should be analyzed on a case-by-case basis and in the context of the contract - particularly, according to whether the government’s actions rise to the level of denying the contractor its benefits of the parties’ bargain in the contract.

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