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A Bad Faith Termination
A recent decision from the United States Court of Federal Claims finds a bad faith default termination of a grounds maintenance contract. The Libertatia Associates, Inc. v. United States, 46 Fed. Cl. 702 (2000). Bad faith is often alleged (usually, by careless pleaders), but infrequently proved. Thus this decision provides rare insight into the concept.
Generally, bad faith is one of four independent factors that can support a finding of arbitrary and capricious
agency action, Hawpe Construction, Inc. v. United States, 46 Fed. Cl. 571, 577-78 (2000), citing Keco Industries, Inc. v. United States, 429 F.2d 1200, 1203 (Ct. Cl. 1974), and bad faith is required to support a claim for breach of the implied obligation, in express and implied-in-fact contracts, of good faith and fair dealing, Asco-Falcon II Shipping Co. v. United States, 32 Fed. Cl. 595, 603-06 (1994).
Bad faith, if it is to be established, requires proof of malice, ill will, or intent to injure:
Plaintiffs have not alleged any facts from which we could reasonably infer that defendant had a specific intent to harm them. “To demonstrate bad faith, specific instances of the government’s ill will directed toward the plaintiff must be identified.” Continental, 29 Fed. Cl. at 652. In the case at bar, plaintiffs have failed to identify in their complaint any specific instance of bad faith or ill will. None of the facts contained therein, even when construed in the light most favorable to the plaintiffs, constitute malice or an intent to injure the plaintiffs on the part of the government. Being motivated by political considerations is not the same thing as being motivated by an intent to harm or injure the plaintiffs. Political motivation without more will not support a finding of bad faith. Since a finding of bad faith is tantamount to a finding of malice, based on the facts alleged in the complaint, we could not find the government had breached its obligation of good faith and fair dealing. . . .
Id., 32 Fed. Cl., at 605.
Just this went on in Libertatia. A grounds maintenance contract was awarded by Fort Rucker on February 12th, 1992, and it was to be effective from April 1st, 1992, through March 31st, 1993. Delivery orders were to be issued every two weeks. In all, nine delivery orders were issued for performance during the period April 6th, 1992, through August 7th, 1992. The contract was terminated for the contractor’s purported failure to cure defective performance on August 8th, 1992. Id., 46 Fed. Cl., at 703-06. Before contract award, there was a concern that the amount offered was too low, but the contractor verified its bid price. Id., at 703.
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The Court convened a hearing that lasted over five days, and it heard testimony from nineteen witnesses. Id., at 705. A single contracting officer’s representative did most of the inspections and evaluations.Id., at 706.
Testimony from several witnesses, including the contracting officer’s receptionist, established that the contracting officer’s representative said several times that he needed the grounds maintenance contractor to work overtime so that he also could work overtime, and then receive premium pay, premium pay he needed because he had just built a new house and wanted to furnish it. The contracting officer’s representative believed
that the contractor had underbid, and to prove his point, he said that “I’m going to break them.” Id., at 708.
The contracting officer’s representative had an unusual perspective on his role, the role of other inspectors, and the role of the contracting officer:
Q: Mr. Barnard, have you ever referred to yourself as Jesus Christ?
A: Yes, sir.
Q: Could you explain that?
A: Well, it's like –
Q: First, let me ask when did it happen?
A: When you’re talking to employees and contractors, they would ask questions on how the contract runs and different things and when you go out here, your weedeaters or your laborers on ground maintenance contracts are not, let’s say, the most educated people as far as education, but they’re raised in the south and the Baptist bible belt, they can relate to the Bible. And so they ask questions that say well, what’s going to happen, the General is going to get mad and all that, and I say well, the General runs the base; Ms. Smith is the contracting officer, she’s the one that has the ultimate authority and I said – I would explain that that would be like God, being the ultimate authority, and that in relationship to her, I was Jesus Christ, I was the one that she had sent out to inspect this contract. Okay? And that Mack and Mr. Williams or other inspectors that would come out would be kind of like disciples. But just in that to kind of relate on how the duties were assigned that these people could relate to that philosophy.
[Counsel] Your Honor, I have nothing further.
Id., 46 Fed. Cl., at 707 n.10, 708.
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The Court found that the contracting officer was well aware of her representative’s statements, and that she did nothing to control his behavior or to remove him—the contracting officer was present when the contracting officer’s representative disparaged the contractor’s officers, and she also made unprofessional personal comments about them (the contractor’s president is “arrogant,” and its treasurer is a “pest”). The contracting officer many times refused to meet with the contractor or return telephone calls from the contractor, times when the contracting officer’s representative was present in her office. Neither, per the Court, did the contracting officer exercise any independent judgment in applying contract standards. Id., at 710-11.
This later point is the most important in a decision that deals with bad faith in detail, viz. that bad faith extends to all of the agents who act for a party, and that a finding of bad faith must be premised on the aggregate of the actions of all of the agents who have acted for a party. Id. Here, the actions of the contracting officer and her representative were sufficient—the absence of evidence of bad faith acts by the other inspectors was not a defense: “While plaintiff did not establish these inspectors’ bad faith or intent to injure plaintiff, neither did defendant establish their independence from the COR’s bad faith was sufficient to outweigh its effect on the administration of the contract.” Id., at 711.
This case was a rare instance, but it teaches a lesson, and that lesson is that courteous conduct, always required, is not sufficient. Courteous conduct must be accompanied by independent judgment and actions. It is not enough to stand by when other contracting officials engage in conduct that could be conceived as a contract breach.
—Cy Phillips
Copyright © 2000 Cyrus E. Phillips, IV. All rights reserved.
Republished from Government Contractor Insights, Volume 7, Number 1, Summer 2000.
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