Government Allowed Contractor to “Twist in the Wind,” Violating Duty of Good Faith and Fair Dealing
Contractors frequently claim that owners have breached the implied duty of good faith and fair dealing, largely as an alternative to more specific claims for constructive change or breach. These good faith and fair dealing claims are difficult to recover on, largely because courts and the boards have required a breach of the implied duty to be tied to an express contract term. However, recently in Relyant, LLC, the Armed Services Board of Contract Appeals (the “Board”) awarded a contractor damages based upon its finding that the government breached the duty of good faith and fair dealing by failing to respond to the contractor’s request to amend its scope of work in a timely manner—notwithstanding the fact that the contract did not contain an express term prescribing a time frame for such responses. The Board found that the government had breached the duty of good faith and fair dealing by “allowing Relyant to, figuratively, ‘twist in the wind’ from late April to early August 2009 as the government considered the change to the [scope of work].”
Implied Duty of Good Faith and Fair Dealing
As explained by the Federal Circuit, the implied duty of good faith and fair dealing exists because “it is rarely possible to anticipate in contract language every possible action or omission by a party that undermines the bargain.” The general rule is that the implied duty of good faith and fair dealing “prevents a party’s acts or omissions that, though not proscribed by the contract expressly, are inconsistent with the contract’s purpose and deprive the other party of the contemplated value.” The “good faith” standard is often judged from the perspective of a contractor’s reasonable expectations. The Restatement (Second) of Contracts § 205 provides that “good faith” excludes conduct that “violate[s] community standards of decency, fairness, or reasonableness,” and cites judicial decisions which have held that “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, and interference with or failure to cooperate in the other party’s performance” may all violate the implied duty. A party that violates the implied duty may be liable for all damages incurred as a result of the breach.
Unreasonable Government Delay in Responding to Contractor Can Implicate Implied Duty of Good Faith and Fair Dealing
Relyant involved a contract to supply pre-fabricated relocatable buildings (“RLBs”) to two sites in Afghanistan. The dispute focused on the RLBs interior finishes: the Scope of Work (“SOW”) accompanying the solicitation required a gypsum drywall interior over three-inch thick fiberglass insulation. Relyant proposed a sandwich panel using a polystyrene insulation. The government awarded the contract to Relyant but the contract did not incorporate a revision to the SOW for Relyant’s proposed sandwich panel.
The first order issued under the contract required Relyant to deliver six RLBs to Forward Operating Base Sharana, Afghanistan, the first being required for First Article Testing (“FAT”) within 180 days. Subsequent delivery orders required Relyant to deliver additional RLBs to Bagram Airfield, Afghanistan. Due to tight scheduling concerns, Relyant could not wait for its first delivery to Sharana to pass FAT testing before it began manufacturing the remainder of the RLBs for the Bagram deliveries. The government accepted the RLB’s delivered to Sharana (with knowledge of the noncompliant sandwich panels), but then rejected the sandwich panels during FAT for the deliveries to Bagram.
As Relyant had already delivered a number of the RLBs to Bagram, it requested a modification to the SOW first in November 2008 and then again in April 2009, both times requesting that the government permit its “as-bid” sandwich panel construction. The government, despite knowing that Relyant was incurring costs while waiting for its response, did not finally reject the proposed modification until August 2009. While the contract did not specify how long the government could review a request for a modification to the scope of work, the government was actually able to review the request and obtain the contracting officer’s concurrence in less than a week—which the Board found would have been a reasonable time for a response.
The Board ultimately held that the implied duty imposes “certain obligations with regard to timeliness of government responses to Relyant’s request to amend the SOW, for which Relyant is entitled to certain relief.” The Board held that the Government had breached the duty of good faith and fair dealing by failing to respond to Relyant’s request in a timely manner. The Board clarified that “the proper inquiry regarding the duty often boils down to questions of “reasonableness” of the government’s actions. In Relyant, the government’s delay was unreasonable when the request could be evaluated and responded to within a week, but the government took over three months to respond despite being aware that the contractor was incurring extra costs as a result of the delay.
The decision serves as a reminder to contractors that the duty of good faith and fair dealing is a valuable claim when a contractor is damaged as a direct result of the government’s failure to respond in a reasonable amount of time to a contractor’s request during contract performance. As the government’s knowledge that the contractor was incurring additional costs was a key factor in allowing Relyant to recover its damages, contractors should remember to notify the government in writing of the type and estimate of any damages that it is incurring as a result of the government’s delayed decision-making.