Every contract imposes upon each party a duty of good faith and fair dealing in its performance and enforcement. Failure to fulfill that duty constitutes a breach of contract, as does failure to fulfill a duty imposed by a promise stated in the contract. However, in a contract with the Federal Government, it can be difficult for a contractor to prove that the Government breached the implied duty of good faith, fair dealing and non-interference. That is because the standard followed by boards of contract appeals in determining whether there has been a breach of the implied duty is rather high. In the past, the Armed Services Board of Contract Appeals (“ASBCA”) required the contractor had to prove that the Government’s action: (1) was “specifically targeted” at the contractor, and (2) “reappropriated” (i.e., took back) a benefit guaranteed by the contract to the contractor. See, Raytheon Missile Systems Co., ASBCA No. 57594, 13 BCA ¶ 35,264.
A recent ASBCA decision, however, clarified what action constitutes a breach of the implied covenant of good faith and fair dealing on the part of the Government. In North America Landscaping, Construction and Dredge Co., Inc., ASBCA Nos. 60235, et al., 18-1 BCA ¶ 37,116 (2018), North American Landscaping, Construction and Dredge, Co., Inc. (“NALCO”) contracted with the U.S. Army Corps of Engineers (“USACE”) for maintenance dredging of two channels on the Scarborough River in Maine. In their complaint, NALCO, among other things, claimed that the USACE breached the implied duty of good faith and fair dealing in awarding and administering the contract. Specifically, NALCO contended that the Government’s readjustment of how mobilization and demobilization were to be paid under the contract was a breach as it deprived NALCO of the cash flow needed to perform the contract.
The ASBCA held that there is no longer a need to find “specific targeting” or “reappropriation” of benefits to establish a breach of the implied duty of good faith and fair dealing. Instead, the ASBCA held that the covenant of good faith and fair dealing imposes obligations on both contracting parties that include the duty not to interfere with the other party’s performance and not to act so as to destroy the reasonable expectations of the other party regarding the benefits of the contract. In applying this standard, the ASBCA looked at the USACE’s actions and its treatment of NALCO and held that the USACE breached the implied duty of good faith and fair dealing. Specifically, ASBCA held that the USACE’s change to the method of payment and subsequent threat to hold NALCO in default when NALCO had cash flow problems created by the change in payment amounted to a breach as NALCO’s failure to perform was excusable.
The ASBCA’s decision is consistent with holdings by the Civilian Board of Contract Appeals (“CBCA”). The CBCA has held that to show a duty of good faith and fair dealing, a party need not provide that the other party acted in bad faith or specifically targeted the party asserting a breach. See, Kiewit-Turner, A Joint Venture, CBCA No. 3450, 15-1 BCA ¶ 35,820.
Where the Government chooses to protect itself rather than act in a way that would lead to the successful completion of the contract, the Government may be held in breach the covenant of good faith and fair dealing. This may make it a little easier for contractors to prove that they have been treated unfairly by the Government.