Government Contracts Monitor

Good Faith And Fair Dealing -- The Government’s Implied Duty Is Alive and Well

May 22, 2015

Mansoor was awarded a contract to provide trucking services in Afghanistan. Nine months into the performance period the Army terminated Mansoor’s contract for default. Mansoor then submitted a certified claim for invoices the government had refused to pay. The Army offered to pay Mansoor a portion of its claim but, following the exchange of several counteroffers, decided the parties had reached a stalemate in their settlement negotiations whereupon the contracting officer (CO) issued a final decision stating that the Army (i) agreed Mansoor had "established entitlement to part of its claims, but, based on the results of [an] audit" (ii) disagreed "that the entirety of the claim [was] valid." Mansoor appealed alleging the Army first, breached its contract by refusing to pay Mansoor’s certified claim; and second, breached the implied covenant of good faith and fair dealing when the CO failed to "fairly and independently consider the merits of [Mansoor’s] claim" by applying a statistical approach that was "neither contemplated by the parties nor consistent with the express terms of the contract." The Army tried – unsuccessfully – to dismiss Mansoor’s good faith and fair dealing claim. Mansoor International Development Services, Inc. v. United States, United States Court of Federal Claims No. 14-496C (May 11, 2015).

In the government’s view, as expressed in its motion to dismiss, the implied duty of good faith and fair dealing "is limited to ensuring compliance with the express terms of the contract and, thus, does not create obligations not contemplated in the contract itself." The Army’s argument focuses exclusively on the express terms of the contract and eliminates any possibility that the implied duty of good faith and fair dealing provides an independent basis for a claim that a contract has been breached. According to the Court, "That is wrong."

Citing to the Restatement (Second) of Contracts § 205, the Court reminds us that "[e]very contract imposes upon each party a duty of good faith and fair dealing in its performance and its enforcement." And, as the Court of Federal Claims makes clear, the implied duty of good faith and fair dealing "addresses the parties’ reasonable expectations that may not have been embodied in explicit contractual language." The implied duty exists because "it is rarely possible to anticipate in contract language every possible action or omission by a party that undermines the bargain." Thus, the duty "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."

Mansoor alleges that the CO breached the duty of good faith and fair dealing by using a statistical means of assessing its claim for the unpaid invoices. Whether that statistical approach "was reasonable in the setting of this contract is a question for another day, the answer to which will turn in substantial part on the parties’ expectations under the contract." But since the duty of good faith and fair dealing "extends to dealing which is candid but unfair," and "[t]hat essentially is the tenor of the allegations Mansoor presents," according to the Court, "Mansoor has manifestly stated a potentially viable claim for relief based on an alleged breach of the implied duty of good faith and fair dealing in the enforcement of the contract at issue." In their words, Mansoor is able to proceed with its claim against the Army based upon a breach of the duty of good faith and fair dealing.

Attorneys

Lindsay Simmons