The Federal Government has broad rights to terminate its contracts for convenience and thereby limit the contractor’s damages to termination for convenience costs instead of breach of contract damages. In fact, the Government can be held to have terminated a contract for convenience even without specifically invoking the termination for convenience clause. Where a contract contains a termination for convenience clause and the contracting officer could have invoked the clause instead of terminating, rescinding or repudiating the contract on some other invalid basis, the Court of Federal Claims or board of contract appeals can constructively invoke the termination clause to retroactively justify the Government’s actions, avoid breach, and limit liability. This is exactly what recently happened to a contractor in JKB Solutions and Servs., LLC, No. 19-1390C (Fed. Cl. Oct. 16, 2020).
JKB Solutions and Servs., LLC
In this case, the contractor had a three-year IDIQ contract to provide instructor services. For each of the ordering periods, the Army could request up to fourteen classes. The contract provided for lot prices for each of the three ordering periods with the price of one lot being the price of fourteen classes.
The Army ordered and paid for nine classes the first period, thirteen the second period, and eight the third period. Although the Army did not order the full fourteen classes during any of the ordering periods, it never explicitly terminated the task orders or the contract for convenience. Instead, the Army issued a task order modification to deobligate funds for the unordered classes and close out the first two task orders. Thereafter, the contractor submitted a claim for breach of contract.
The contractor argued that the Army breached its contractual duty when it refused to pay for fourteen classes for each ordering period and that it was entitled to compensation for the classes not performed. The Army, on the other hand, argued that it only was required to pay for the classes the contractor actually performed. The Court of Federal Claims ultimately concluded that the contract was latently ambiguous as to whether the contract obligated the Army to pay for fourteen classes for each ordering period or just the classes that were performed.
The Court ultimately resolved the dispute by constructively terminating the contract for convenience after finding that the contract contained a valid termination for convenience clause and that the Army could have terminated the task orders when it became clear that the Army did not require the contractor to teach fourteen classes per order. Under the termination for convenience clause, the contractor could have sought to recover its termination costs. However, since the contractor had not claimed these costs, the Court held that the contractor was not entitled to recover any money from the Government.
Holding the Government Liable for Breach of Contract
This case is a stark reminder of the extreme difficulty in holding the Government liable for breach of contract when the Government fails to order the required goods or services under the contract. Contractors who seek to recover breach of contract damages from the Government in these circumstances should carefully consider whether they need to submit alternative claims for termination for convenience costs. Failure to do so could result in the contractor being precluded from any recovery whatsoever.