Government Contracts Monitor

Perseverance and Litigation Prompt Government to Convert Default Termination to Termination for Convenience

December 10, 2013

Sometimes, if you push hard enough and long enough, you can get a default termination converted to a termination for convenience. That is what happened in White Buffalo Construction, Inc. v. United States, No. 2012-5045 (Fed. Cir. Nov. 1, 2013).

White Buffalo Construction, Inc. (“White Buffalo”) contracted with the Federal Highway Administration (“FHA”) to repair damaged roads in the Sikiyou National Forest in Oregon in 1998. From the outset, there were issues with construction schedules and permitting in this environmentally sensitive area. The FHA also set a very aggressive construction deadline, which became more and more difficult to meet with each administrative or permitting delay. After additional issues arose, the FHA issued a cure notice on November 16, 1998. On December 1, 1998, the FHA default terminated White Buffalo. After the default termination, the FHA contacted White Buffalo’s surety about selecting a follow-on contractor to complete White Buffalo’s work. A contractor was selected and the construction work was completed in October 1999.

After it was default terminated, White Buffalo filed Freedom of Information Act requests for documents related to the termination and subsequently filed suit in federal district court to get the requested documents. White Buffalo apparently used the documents it received to file claims against the FHA in the Court of Federal Claims. Among the claims were several for bad faith termination, bad faith refusal to extend White Buffalo’s environmental permits, and bad faith attempt to “cover up” the justification for the default termination in the Freedom of Information Act litigation.

While this litigation was proceeding in the Court of Federal Claims, the Government unilaterally converted the default termination to a termination for convenience because “trial preparation had uncovered a substantial question as to whether the project could have been completed on time by White Buffalo due to differing site conditions.” Upon conversion, the FHA released $100,000 it had previously held as liquidated damages and White Buffalo was invited to submit a termination settlement proposal. White Buffalo then filed a new case in the Court of Federal Claims to recover the conversion and related settlement costs. All of White Buffalo’s cases in the Court of Federal Claims were consolidated and tried together.

The Court of Federal Claims ultimately awarded White Buffalo $352,237.36 in costs, settlement expenses, and interest. White Buffalo appealed on several grounds, chief among which was that the conversion of the default termination to a termination for convenience was in bad faith and improper.

The U.S. Court of Appeals for the Federal Circuit had little trouble finding the conversion proper. The appeals court noted White Buffalo’s argument that the conversion was made “on the eve of trial to avoid liability for lost profits. But White Buffalo fail[ed] to explain how a desire to minimize the Government’s litigation exposure constitutes bad faith.” The Federal Circuit also credited the Court of Federal Claims’ finding that the conversion was made because the “government officials were divided on the complex fact issue on this project and opted to give White Buffalo the benefit of the doubt.”

The lessons from this case are not in the court opinions, but in the practical effects. Prior to litigating, White Buffalo was saddled with a default termination that could have serious effects on its ability to remain a federal contractor. By pushing the issue in litigation and forcing the Government to take a hard look at its evidence, White Buffalo got its default converted into a termination for convenience, making it eligible for costs, expenses, and interest. So, in the right factual situation, it pays to press claims against the Government in the hope of getting a default termination converted.

Michael J. Schrier is the attorney responsible for the content of this article.