Case: 20-1084 Document: 55 Page: 1 Filed: 12/23/2020
United States Court of Appeals
for the Federal Circuit
______________________
BGT HOLDINGS LLC,
Plaintiff-Appellant
v.
UNITED STATES,
Defendant-Appellee
______________________
2020-1084
______________________
Appeal from the United States Court of Federal Claims
in No. 1:18-cv-00178-PEC, Judge Patricia E. Campbell-
Smith.
______________________
Decided: December 23, 2020
______________________
MILTON C. JOHNS, Executive Law Partners, PLLC, Ma-
nassas, VA, argued for plaintiff-appellant.
BORISLAV KUSHNIR, Commercial Litigation Branch,
Civil Division, United States Department of Justice, Wash-
ington, DC, argued for defendant-appellee. Also repre-
sented by JEFFREY B. CLARK, ELIZABETH MARIE HOSFORD,
ROBERT EDWARD KIRSCHMAN, JR.
______________________
Before PROST, Chief Judge, BRYSON and STOLL, Circuit
Judges.
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2 BGT HOLDINGS LLC v. UNITED STATES
BRYSON, Circuit Judge.
BGT Holdings LLC appeals from a decision of the
United States Court of Federal Claims (“the Claims Court”)
dismissing its claims arising from the U.S. Navy’s with-
holding of certain government-furnished equipment under
a fixed-price contract. The dismissal followed the court’s
ruling that BGT had contractually waived its claims of con-
structive change through ratification, official change
through waiver, and breach for failure to award an equita-
ble adjustment. The court also held that BGT insuffi-
ciently alleged a breach of the implied duty of good faith
and fair dealing. We affirm the dismissal of the breach of
good faith and fair dealing claim but vacate the court’s dis-
missal of the remaining claims.
I
A
In 2014, BGT contracted with the Navy to construct
and deliver a gas turbine generator. The Navy agreed to
supply certain government-furnished equipment (“GFE”)
that BGT would use to construct the generator. Two of the
GFE items identified in the contract—an exhaust collector
and engine mounts—are relevant to this appeal because
the Navy ultimately did not deliver those items to BGT.
The withdrawal of those items and the Navy’s failure to
compensate BGT for that withdrawal are the source of the
dispute in this case.
The contract incorporated various clauses from the
Federal Acquisition Regulation (“FAR”). For convenience,
we cite to the FAR when referencing those contract clauses.
One such clause, the “government property” clause, pro-
vides as follows in relevant part:
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BGT HOLDINGS LLC v. UNITED STATES 3
(d) Government-furnished property.
(1) The Government shall deliver to the Contractor
the Government-furnished property described in
this contract. . . .
(2) The delivery and/or performance dates specified
in this contract are based upon the expectation that
the Government-furnished property will be suita-
ble for contract performance and will be delivered
to the Contractor by the dates stated in the con-
tract.
(i) If the property is not delivered to the Contractor
by the dates stated in the contract, the Contracting
Officer shall, upon the Contractor’s timely written
request, consider an equitable adjustment to the
contract.
...
(3)(i) The Contracting Officer may by written no-
tice, at any time—
(A) Increase or decrease the amount of Govern-
ment-furnished property under this contract;
...
(C) Withdraw authority to use property.
(ii) Upon completion of any action(s) under para-
graph (d)(3)(i) of this clause, and the Contractor’s
timely written request, the Contracting Officer
shall consider an equitable adjustment to the con-
tract.
...
(i) Equitable adjustment. Equitable adjustments
under this clause shall be made in accordance with
the procedures of the Changes clause. However,
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4 BGT HOLDINGS LLC v. UNITED STATES
the Government shall not be liable for breach of
contract for the following:
(1) Any delay in delivery of Government-furnished
property.
(2) Delivery of Government-furnished property in a
condition not suitable for its intended use.
(3) An increase, decrease, or substitution of Gov-
ernment-furnished property.
48 C.F.R. § 52.245-1.
To summarize, subsection (d)(1) of the government
property clause requires the Navy to deliver the designated
GFE; subsection (d)(2)(i) provides that the Navy “shall con-
sider” an equitable adjustment if it does not deliver the des-
ignated GFE by the agreed-upon date; subsection (d)(3)(i)
gives the Navy the right to modify its GFE commitments;
and subsection (d)(3)(ii) provides that the Navy “shall con-
sider” an equitable adjustment if it modifies those GFE
commitments. Separately, subsection (i) requires that eq-
uitable adjustments be made according to the procedures
in the contract’s changes clause. Subsection (i) also pro-
vides that neither the Navy’s modifications to its GFE com-
mitments nor its untimely delivery of GFE will constitute
a breach of the contract.
The contract incorporates the standard FAR changes
clause for fixed-price contracts,
48 C.F.R. § 52.243-1. The
fixed-price changes clause covers the Navy’s modifications
to the method of shipment, the method of packing, the place
of delivery, and the “[d]rawings, designs, or specifications”
for specially manufactured items.
Id. The clause provides
that if the Navy makes any of those modifications, the con-
tracting officer “shall make an equitable adjustment.”
Id.
The contract also incorporates a changes clause from
outside the FAR that defines “authorized changes” for the
entire contract. That clause is unique to the Naval Surface
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BGT HOLDINGS LLC v. UNITED STATES 5
Warfare Center Carderock Division and is referred to as
the NSWCCD changes clause. It states as follows:
(a) Except as specified in paragraph (b) below, no
order, statement, or conduct of Government per-
sonnel who visit the Contractor’s facilities or in any
other manner communicates with Contractor per-
sonnel during the performance of this contract
shall constitute a change under the “Changes”
clause of this contract.
(b) The Contractor shall not comply with any order,
direction or request of Government personnel un-
less it is issued in writing and signed by the Con-
tracting Officer, or is pursuant to specific authority
otherwise included as a part of this contract.
The NSWCCD changes clause lists the contact infor-
mation for the contracting officer, Mr. John Stefano, and
declares that “[t]he Contracting Officer is the only person
authorized to approve changes in any of the requirements
of this contract.” The clause then warns that “any change
at the direction of any person other than the Contracting
Officer . . . will be considered to have been made without
authority and no adjustment will be made in the contract
price to cover any increase in charges incurred as a result
thereof.”
B
We recount the facts according to BGT’s factual allega-
tions in its amended complaint, which we accept as true for
purposes of the Navy’s motion to dismiss. See Ashcroft v.
Iqbal,
556 U.S. 662, 678 (2009).
A few months into the contract performance, the Navy
procurement team—including Ms. Suzanne Onesti, the
procurement manager—informed BGT that the Navy
would not deliver the exhaust collector and engine mounts
unless BGT provided a “cost savings” to the Navy, i.e., a
decrease in the contract price commensurate with the
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6 BGT HOLDINGS LLC v. UNITED STATES
amount BGT would save by not having to procure the ex-
haust collector and engine mounts on its own. When asked
about cost savings at oral argument, neither the govern-
ment nor BGT identified a contract provision giving the
Navy the right to demand a cost savings in exchange for
supplying the designated items of GFE.
BGT declined to offer a cost savings for the exhaust col-
lector and engine mounts that were to be provided as GFE.
The Navy then notified BGT that the exhaust collector and
engine mounts had been reallocated as fleet assets and
would no longer be made available to BGT. To continue
performing under the contract, BGT purchased those items
on the commercial market at a cost of $610,775. BGT then
submitted a request for an equitable adjustment for the
cost of those items. In early 2017, BGT delivered the com-
pleted gas turbine generator to the Navy. The Navy ac-
cepted the generator but rejected BGT’s request for an
equitable adjustment for the cost of the exhaust collector
and engine mounts.
According to BGT, the Navy’s request for a cost savings
and the Navy’s final notice of GFE withdrawal were com-
municated at the direction of the contracting officer, Mr.
Stefano. BGT does not allege, however, that the contract-
ing officer issued a signed order concerning either commu-
nication.
Instead, BGT alleges facts that circumstantially con-
nect the contracting officer to the GFE negotiations. Ac-
cording to BGT, the Navy instructed BGT to direct all
communications to Navy employees Ms. Onesti and Ms.
Carolyn McCloskey, “the conduits to the larger Navy
team.” BGT also alleges that it was the “usual course of
performance” for the contracting officer’s decisions to be
communicated through Ms. Onesti or Ms. McCloskey. For
example, Ms. Onesti communicated a directive that BGT
should use its own testing data to size the water treatment
system for the gas turbine. Mr. Stefano later
Case: 20-1084 Document: 55 Page: 7 Filed: 12/23/2020
BGT HOLDINGS LLC v. UNITED STATES 7
acknowledged that “when Ms. Onesti advised BGT that
[the Navy] agreed that the water test results provided by
BGT were to be used in sizing water treatment system for
the [turbine], it could be construed as being tantamount to
acceptance and authorization to proceed with the contrac-
tor’s intended revisions.”
Furthermore, according to BGT, the contracting officer
must have directed the Navy’s communications regarding
the exhaust collector and engine mounts because he was
the only person with authority to withdraw those GFE
items and reallocate them as fleet assets. Relatedly, BGT
alleges that the contracting officer “knew or should have
known” of the Navy’s request for a cost savings and the
Navy’s threatened withdrawal of GFE because BGT com-
municated those issues in progress reports that were regu-
larly distributed to the contracting officer.
C
BGT organized its amended complaint into five counts.
Two of those counts, Counts IV and V, are not at issue in
this appeal.
A fair reading of the allegations in Counts I through III
reveals five possible grounds for relief: First, the complaint
alleges that the Navy’s decision to withdraw the exhaust
collector and engine mounts constituted a constructive
change of the GFE provision for which BGT is entitled to
an equitable adjustment. Although the contracting officer
did not issue a signed order withdrawing those items of
GFE, the complaint alleges that the contracting officer rat-
ified the Navy’s decision to withdraw those items by real-
locating them as fleet assets, thus providing the requisite
authority for a constructive change.
Second, the complaint alleges that the contracting of-
ficer waived the Navy’s rights under the NSWCCD changes
clause, thus converting the Navy’s decision to decrease
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8 BGT HOLDINGS LLC v. UNITED STATES
GFE into an official change for which BGT is entitled to an
equitable adjustment.
Third, the complaint alleges that the Navy breached its
contractual duty to deliver the exhaust collector and engine
mounts, and that BGT is entitled to contract damages for
that breach.
Fourth, the complaint alleges that the Navy breached
its contractual duty to provide BGT an equitable adjust-
ment after failing to deliver those GFE items, and that
BGT is entitled to contract damages for that breach.
Fifth, the complaint alleges that the Navy breached its
implied duty of good faith and fair dealing by intentionally
withholding those GFE items and thus obstructing BGT’s
performance under the contract. BGT contends that it is
entitled to an award of damages for that breach.
Under each of its theories of liability, BGT seeks an
award of $610,775, the cost BGT incurred in purchasing
the exhaust collector and engine mounts on the commercial
market.
The Claims Court dismissed Counts I through III of
BGT’s amended complaint and entered a final judgment on
those counts under Rule 54(b) of the Rules of the Court of
Federal Claims. BGT Holdings, LLC v. United States,
142
Fed. Cl. 474, 484 (2019). The Rule 54(b) judgment entitled
BGT to take an immediate appeal from the dismissal of
those counts.
The Claims Court consolidated its analysis of BGT’s
first two claims—constructive change through ratification
and official change through waiver. The court held that
neither claim entitled BGT to an equitable adjustment, be-
cause “the specific contract language at issue here pre-
cludes [BGT’s] arguments relating to ratification and
waiver.”
Id. at 479–80, 482 (citing the NSWCCD changes
clause and subsection (i) of the government property
clause).
Case: 20-1084 Document: 55 Page: 9 Filed: 12/23/2020
BGT HOLDINGS LLC v. UNITED STATES 9
The court held BGT’s claim of breach for failure to de-
liver the exhaust collector and engine mounts to be pre-
cluded by subsection (i) of the government property clause,
which states that “the Government shall not be liable for
breach of contract for . . . [a]n increase, decrease, or substi-
tution of [GFE].”
Id. at 482–83. Likewise, the court held
that the contract precluded BGT’s claim of breach for fail-
ure to provide an equitable adjustment, rejecting that
claim based on its analysis of BGT’s first two claims.
Id. at
482. The court rejected BGT’s final claim, alleging breach
of the implied duty of good faith and fair dealing, given the
Navy’s right to decrease or withdraw GFE under the con-
tract.
Id. at 483–84.
II
On appeal, BGT does not challenge the court’s holding
that the government property clause precludes BGT’s
claim of breach for failure to deliver the exhaust collector
and engine mounts. See
48 C.F.R. § 52.245-1(i) (precluding
claims of breach for the increase, decrease, substitution, or
delay in delivery of GFE). BGT challenges the dismissal of
its remaining claims, however. With respect to rights aris-
ing under the contract, BGT argues that it is entitled to an
equitable adjustment under both the government property
clause and the fixed-price changes clause. In addition,
BGT contends that it is entitled to compensation because
the government breached its implied duty of good faith and
fair dealing by withdrawing GFE items and then refusing
to compensate BGT for that withdrawal through an equi-
table adjustment.
A
The most straightforward claim in BGT’s amended
complaint is that the Navy breached the government prop-
erty clause,
48 C.F.R. § 52.245-1, by failing to provide an
equitable adjustment after it withheld the GFE items it
had agreed to deliver under the contract.
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10 BGT HOLDINGS LLC v. UNITED STATES
While the Navy was entitled to withdraw GFE under
the government property clause, it was not free to do so
without consequence. Two subsections of the government
property clause are applicable to withdrawals of GFE.
First, under subsection (d)(3)(i) of that clause, the contract-
ing officer “may, by written notice, at any time—(A) In-
crease or decrease the amount of Government-furnished
property under this contract; . . . .” In that event, subsec-
tion (d)(3)(ii) requires that the contracting officer “shall
consider an equitable adjustment to the contract.” Second,
under subsection (d)(2)(i) of the government property
clause, if the GFE promised under the contract “is not de-
livered to the Contractor by the dates stated in the con-
tract, the Contracting Officer shall, upon the Contractor’s
timely written request, consider an equitable adjustment
to the contract.” Those two subsections cover cases in
which GFE is not delivered, either by formal order of the
contracting officer or otherwise. In either event, the rem-
edy is the same: The contracting officer must consider an
equitable adjustment.
BGT pleaded facts sufficient to support a claim of
breach under the government property clause. Count II of
the amended complaint alleges that the Navy’s “refusal to
provide an equitable adjustment was a material breach of
the Contract.” J.A. 33. Count II also incorporates facts
from earlier portions of the amended complaint, including
that the Navy withdrew certain GFE items, that BGT was
forced to purchase those items on the commercial market
because they were not delivered, that BGT requested an
equitable adjustment in a timely manner, and that the
Navy denied that request.
Even assuming that the contracting officer is not
chargeable—through ratification or otherwise—with hav-
ing ordered the withdrawal of the exhaust collector and en-
gine mounts, the Claims Court erred by not considering the
pathway to relief under subsection (d)(2)(i) of the govern-
ment property clause. That pathway is available
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BGT HOLDINGS LLC v. UNITED STATES 11
regardless of whether the contracting officer executed a
written authorization for withdrawing items of GFE iden-
tified in the contract.
If relief under subsection (d)(2)(i) were not available,
and the contractor could seek relief only under subsection
(d)(3)(ii), the government could avoid liability for reneging
on its GFE commitments in any case simply by withdraw-
ing GFE items without a written notice from the contract-
ing officer. The availability of relief under subsection
(d)(2)(i) provides a backstop against such a ploy.
The government argues that BGT’s claim under sub-
section (d)(2)(i) is untenable because the contracting officer
was required only to “consider BGT’s request for an equi-
table adjustment—not to grant the adjustment to BGT.”
Appellee’s Br. 27. 1 Under the government’s theory, the
phrase “shall consider” gave the contracting officer discre-
tion to grant or deny an equitable adjustment and imposed
no duty to grant an adjustment even if BGT could prove
financial loss due to the government’s withdrawal of the
exhaust collector and engine mounts.
We reject the government’s interpretation of the term
“shall consider” because it would produce absurd results
under the government property clause. See United States
v. Winstar Corp.,
518 U.S. 839, 907 (1996) (avoiding a con-
tract interpretation that “would be absurd”); Keepseagle v.
Perdue,
856 F.3d 1039, 1047 (D.C. Cir. 2017) (interpreting
an ambiguous contract term in order to avoid an absurd
result). To illustrate, assume that the committed GFE in
this case had a total value nearing $5 million, well over half
of the contract price of $8.25 million. See J.A. 24–25. If the
1 While the government asserted this argument in
connection with subsection (d)(3)(ii), its logic would extend
to subsection (d)(2)(i) because that subsection also includes
the “shall consider” phrase.
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12 BGT HOLDINGS LLC v. UNITED STATES
Navy had withdrawn all GFE, as the contract allows, it
would be implausible to posit that the Navy’s only obliga-
tion would be merely to “think over” BGT’s request for an
equitable adjustment before denying it. It is dubious, to
say the least, that the drafters of the FAR’s government
property clause,
48 C.F.R. § 52.245-1, envisioned that the
government would essentially have an unfettered right to
withdraw promised GFE from a contract without conse-
quence.
The correct interpretation of “shall consider” in this
contract setting does not give the government absolute dis-
cretion, but instead holds the government to a duty of good
faith and reasonableness. See Goldstein v. Johnson &
Johnson,
251 F.3d 433, 444 (3d Cir. 2001) (“Ordinary con-
tract principles require that, where one party is granted
discretion under the terms of the contract, that discretion
must be exercised in good faith—a requirement that in-
cludes the duty to exercise the discretion reasonably.” (cit-
ing the Restatement (Second) of Contracts § 205 & cmt. a));
Walsh v. Zurich Am. Ins. Co.,
853 F.3d 1, 14 (1st Cir. 2017)
(stating the same under New Hampshire law); Stokes v.
DISH Network, L.L.C.,
838 F.3d 948, 952 (8th Cir. 2016)
(stating the same under Colorado law). Moreover, the FAR
demands that the contracting officer exercise impartiality,
fairness, and equitable treatment when considering re-
quests for equitable adjustments. See
48 C.F.R. § 1.602-2
(“Contracting officers shall . . . (b) Ensure that contractors
receive impartial, fair, and equitable treatment; . . . .”). The
government’s interpretation of “shall consider” would in-
vite subversion of that responsibility.
Accordingly, we vacate the dismissal of BGT’s claim
that the Navy breached its duty to provide an equitable ad-
justment after it failed to deliver the exhaust collector and
engine mounts. On remand, the Claims Court must deter-
mine whether BGT is entitled to an equitable adjustment
as fair compensation for the failure to deliver those GFE
items.
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BGT HOLDINGS LLC v. UNITED STATES 13
B
Apart from subsection (d)(2)(i) of the government prop-
erty clause, BGT argues that it is entitled to an equitable
adjustment under either subsection (d)(3)(ii) of the govern-
ment property clause or the fixed-price changes clause.
The Claims Court rejected that claim on the ground that
the Navy’s withdrawal of GFE was not communicated in a
writing signed by the contracting officer, as required by the
NSWCCD changes clause, and therefore was not compen-
sable under the contract. 2
In response, BGT argues that the Navy’s withdrawal of
the exhaust collector and engine mounts constituted a con-
structive change to the contract because that withdrawal
was ratified by the contracting officer after the fact. In the
alternative, BGT argues that the Navy’s withdrawal of
those GFE items constituted an official change to the
2 The government argues that BGT waived its claim
for an equitable adjustment based on a constructive change
because the amended complaint did not contain a citation
to the changes clause,
48 C.F.R. § 52.243-1. Rule 9(k) of
the Rules of the Court of Federal Claims, on which the gov-
ernment relies, requires a party pleading a claim founded
on a contract to identify the substantive provisions of the
contract on which the party relies or annex to the com-
plaint a copy of the contract, indicating the relevant por-
tions. BGT annexed a copy of the contract to its amended
complaint, and its claim of constructive change effectively
identified the changes clause as the source of its asserted
right to an equitable adjustment. See J.A. 31. Moreover,
the government waived this argument by not raising it be-
fore the Claims Court. The government’s only reference to
Rule 9(k) before the Claims Court related to the govern-
ment property clause, not the changes clause. See J.A. 180.
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14 BGT HOLDINGS LLC v. UNITED STATES
contract because the Navy waived any requirement that
the change be approved in writing by the contracting of-
ficer. 3
1
To demonstrate a constructive change, a plaintiff must
show (1) that it performed work beyond the contract’s re-
quirements, and (2) that the additional work was ordered,
expressly or impliedly, by the government. Bell/Heery v.
United States,
739 F.3d 1324, 1335 (Fed. Cir. 2014). As to
the second element, the directive ordering the additional
work must come from an individual having actual author-
ity to bind the government. RMA Eng’g S.A.R.L. v. United
States,
140 Fed. Cl. 191, 234 (2018) (citing Winter v. Cath-
dr/Balti Joint Venture,
497 F.3d 1339, 1344 (Fed. Cir.
2007)). A clause that explicitly and exclusively assigns
modification authority to a contracting officer ensures that
other employees are not deemed to have implied authority
to modify the contract. Winter,
497 F.3d at 1346. In this
case, the NSWCCD changes clause assigned modification
authority exclusively to the contracting officer. As a result,
3 Because both parties treat the NSWCCD changes
clause as applicable to the withdrawal of the GFE in this
case, we accept that premise for purposes of the changes
clause arguments. It is not clear, however, that the
changes clause applies with full force to a case such as this
one, in which the government is not directing the contrac-
tor to make changes but is unilaterally making the changes
itself. In that setting, it makes little sense to say that the
contractor should not undertake to make changes other
than as directed in a written order by the contracting of-
ficer, since the contractor has no way to decline to make a
change that was made unilaterally by the government,
whether directed by the contracting officer or otherwise.
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BGT HOLDINGS LLC v. UNITED STATES 15
other Navy employees, including Ms. Onesti, did not have
actual or implied authority to modify the contract.
BGT does not allege that Ms. Onesti or any other Navy
employee acted with actual or implied authority when com-
municating the Navy’s decision to withdraw the exhaust
collector and engine mounts. Instead, BGT alleges ratifi-
cation as a substitute for actual authority. See Northrop
Grumman Sys. Corp. v. United States,
140 Fed. Cl. 249, 277
(2018) (analyzing ratification as a substitute for actual au-
thority within the context of constructive change); see also
Winter,
497 F.3d at 1346; Restatement (Third) of Agency
§ 4.01 (2006) (“Ratification is the affirmance of a prior act
done by another, whereby the act is given effect as if done
by an agent acting with actual authority.”).
According to BGT’s amended complaint, the contract-
ing officer ratified the Navy’s informal decision to decrease
the GFE because the contracting officer had knowledge of
that decision from submitted progress reports and affirmed
that decision by reallocating the exhaust collector and en-
gine mounts as fleet assets. Assuming that a constructive
change did occur, BGT has a plausible path to a remedy
under either subsection (d)(3)(ii) of the government prop-
erty clause or the fixed-price changes clause. See NavCom
Def. Elecs., Inc. v. England, 53 F. App’x 897, 900 (Fed. Cir.
2002) (noting that the remedy for a constructive change is
“an equitable adjustment under the ‘changes’ provision of
the contract” (quoting Ets-Hokin Corp. v. United States,
420 F.2d 716, 720 (Ct. Cl. 1970))).
In dismissing BGT’s claim of constructive change, the
Claims Court did not reach the merits of BGT’s ratification
theory, i.e., whether BGT alleged sufficient facts to support
a plausible claim of constructive change through ratifica-
tion. See BGT Holdings, 142 Fed. Cl. at 479–82. Rather,
the court held that BGT had contractually waived its right
to assert ratification by agreeing to the NSWCCD changes
clause. Id. at 481–82. The court noted that the NSWCCD
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16 BGT HOLDINGS LLC v. UNITED STATES
changes clause warned BGT not to comply “with any order,
direction or request” from anyone other than the contract-
ing officer and that it put BGT on notice that “no adjust-
ment will be made in the contract price to cover any
increase in charges incurred as a result” of unauthorized
orders. Id. at 482. According to the court, that unambigu-
ous language precludes ratification, and by agreeing to
that clause, BGT waived its right to assert ratification in
future litigation. Id.
BGT argues that the language of the NSWCCD
changes clause does not address ratification and thus does
not preclude a finding of ratification in this case. We agree.
Our decision in Winter v. Cath-dr/Balti Joint Venture,
497
F.3d 1339 (Fed. Cir. 2007), provides strong support for
BGT’s argument on this issue. The changes clause in the
contract at issue in Winter is quite similar to the NSWCCD
changes clause in this case. And in spite of the changes
clause in Winter, we effectively endorsed the possibility of
ratification in Winter by remanding the case for a more de-
tailed analysis of the plaintiff’s ratification theory.
The government argues that Winter is distinguishable
because the changes clause in that case contained addi-
tional language stating that unauthorized modifications
would not bind the government “unless formalized by
proper contractual documents executed by the Contracting
Officer prior to completion of this contract.” Winter,
497
F.3d at 1345. According to the government, that clause
provided a contractual basis for the plaintiff’s ratification
theory in Winter that is not present here. Second, the gov-
ernment points out that contract-based waiver was not as-
serted in the Winter case. As a result, the government
argues that Winter did not resolve the issue of contract-
based waiver.
We disagree with the government’s first argument.
The “unless” clause in Winter did not grant the contracting
officer in that case any additional authority to ratify
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BGT HOLDINGS LLC v. UNITED STATES 17
changes relative to the contracting officer’s authority in
this case. It is clear that none of the contract provisions in
this case—including the NSWCCD changes clause and sub-
section (d)(3)(i) of the government property clause—re-
strict the contracting officer’s authority to ratify an
unauthorized change after the fact. If anything, relative to
this case, the “unless” clause in Winter had the effect of lim-
iting ratification authority by specifying the circumstances
in which the contracting officer could ratify a prior action
by an unauthorized government employee. The contract in
Winter is thus not distinguishable from the contract in this
case in a way that undermines BGT’s ratification argu-
ment.
As for the government’s second argument, it is true
that Winter did not address contractual waiver and thus
does not represent binding precedent as to that issue.
Nonetheless, by recognizing the availability of ratification
in the face of contract provisions similar to those in this
case, Winter at least casts doubt on the proposition that
contract language that is silent as to ratification, such as
the language in the NSWCCD changes clause, is sufficient
to bar a contractor’s ratification theory.
In light of our decision in Winter, the language of the
NSWCCD changes clause, and the contract as a whole, we
hold that BGT did not contractually waive its ratification
theory. The contract in this case does not mention “ratifi-
cation.” Nor does the contract otherwise expressly limit the
contracting officer’s authority to ratify prior actions that
were not made in full compliance with procedures required
by the contract. Contrary to the government’s contention,
the NSWCCD changes clause simply does not address the
fact pattern of ratification—an unauthorized employee
communicating a change in the first instance, and the con-
tracting officer taking affirmative steps to confirm that
change.
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18 BGT HOLDINGS LLC v. UNITED STATES
Accordingly, we vacate the dismissal of BGT’s claim
that the Navy’s decision to decrease GFE was a construc-
tive change through ratification. We remand for the
Claims Court to determine whether BGT pleaded facts suf-
ficient to support its ratification theory and, if so, whether
BGT can prove that the contracting officer ratified the
withdrawal of the exhaust collector and engine mounts.
2
In addition to pleading ratification, BGT alleges that
the contracting officer waived the requirement that
changes be made only through a signed writing, thus mak-
ing the Navy’s decision to withdraw GFE an official change
under the contract. If BGT prevails on its theory of official
change through waiver, it would have a plausible path to a
remedy under either subsection (d)(3)(ii) of the government
property clause or the fixed-price changes clause.
BGT asserts that the contracting officer waived the
Navy’s rights under the NSWCCD changes clause through
a pattern of conduct. In particular, BGT alleges that the
contracting officer, by virtue of his position of authority,
knew of the Navy’s right to make changes exclusively
through a signed writing. BGT further alleges that the
contracting officer relinquished that right when he author-
ized the withdrawal of GFE—which only he had the au-
thority to do—and did so other than through a signed,
written order. Finally, BGT alleges that the contracting
officer waived that right when he characterized a previous
communication from Ms. Onesti as being “tantamount to
acceptance and authorization” of a requested operating
procedure.
As with BGT’s claim of constructive change, the Claims
Court did not address whether BGT alleged sufficient facts
to support a plausible claim of change through waiver. See
BGT Holdings, 142 Fed. Cl. at 479–82. Rather, the court
dismissed BGT’s claim of waiver for the same reasons it
dismissed BGT’s claim of constructive change: It held that
Case: 20-1084 Document: 55 Page: 19 Filed: 12/23/2020
BGT HOLDINGS LLC v. UNITED STATES 19
BGT had contractually waived its right to assert waiver by
agreeing to the NSWCCD changes clause, which was “un-
ambiguously and diametrically opposed” to BGT’s waiver
theory. Id. at 481–82.
BGT argues that the language of the NSWCCD
changes clause does not address waiver and thus does not
preclude its waiver theory. The government takes the op-
posite position. Neither party cites precedent that is di-
rectly relevant to the issue. And our decision in Winter did
not address the type of waiver theory that BGT asserts.
We hold that BGT did not contractually waive its
waiver theory. The NSWCCD changes clause has nothing
to say about the fact pattern of waiver, i.e., an authorized
individual with knowledge of a contract right taking ac-
tions that evince an intent to abandon that right.
The NSWCCD changes clause warns BGT not to com-
ply with any order “unless it is in writing and signed by the
Contracting Officer.” To be sure, that language addresses
actions by the contracting officer, an authorized individual
with knowledge of contract rights. But the purpose of that
language is to warn BGT to disregard orders from unau-
thorized personnel, not to prevent the contracting officer
(or some other high-level official) from intentionally waiv-
ing the government’s rights as to how changes must be or-
dered.
The government argues that BGT’s waiver theory con-
tradicts the NSWCCD changes clause because that clause
“unambiguously states that any directive by unauthorized
Government personnel ‘will be considered to have been
made without authority.’” Appellee’s Br. 21. Relatedly, the
government argues that BGT’s waiver theory would con-
tradict the settled principle that actions by unauthorized
government employees do not bind the government.
The government’s arguments miss the point. BGT is
not asserting that lower-level employees waived the Navy’s
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20 BGT HOLDINGS LLC v. UNITED STATES
rights. Nor could it make such an assertion, because the
doctrine of waiver assumes that the individual committing
waiver has authority to waive a right in the first instance.
See Molton, Allen & Williams, Inc. v. Harris,
613 F.2d
1176, 1178 (D.C. Cir. 1980) (analyzing “whether the gov-
ernment agent dealing with appellant had authority to and
in fact did waive [a contract] provision”); Globe Indem. Co.
v. United States,
102 Ct. Cl. 21, 38 (1944) (holding that the
government’s engineer and architect did not have author-
ity to waive certain contract rights). Rather, BGT is assert-
ing that the contracting officer waived the Navy’s rights,
which does not contradict the settled principle that actions
by unauthorized government personnel cannot bind the
government. See Winter,
497 F.3d at 1344.
Because we disagree with the Claims Court’s ruling
that BGT’s waiver theory was precluded by the contract,
we vacate the dismissal of BGT’s claim of official change
through waiver. We remand for the court to determine
whether BGT pleaded facts sufficient to support its waiver
theory and, if so, whether the contracting officer waived the
requirement that changes be made only by a written order
of the contracting officer.
C
The final claim for relief in BGT’s amended complaint
is that the Navy breached its implied duty of good faith and
fair dealing by intentionally withholding the exhaust col-
lector and engine mounts and by communicating its deci-
sion to withhold those GFE items in an unsanctioned
manner. BGT alleges that the Navy’s conduct frustrated
BGT’s ability to perform its contractual obligations by forc-
ing it to incur $610,775 in excess costs.
In dismissing BGT’s claim, the Claims Court consid-
ered the express language of the contract, which gives the
Navy the ability to decrease or withdraw GFE and pre-
cludes a claim of breach for such actions. BGT Holdings,
142 Fed. Cl. at 483–84 (citing subsections (d)(3)(i)(A),
Case: 20-1084 Document: 55 Page: 21 Filed: 12/23/2020
BGT HOLDINGS LLC v. UNITED STATES 21
(d)(3)(i)(A)(C), and (i)(3) of the government property
clause). As a result, the court held that the Navy’s with-
drawal of GFE did not violate its implied duty of good faith
and fair dealing. Id.
We agree with the Claims Court that the implied duty
of good faith and fair dealing provides no basis for extra-
contractual relief in this case. The contract unquestionably
gives the Navy the right to decrease or withdraw GFE.
BGT cannot use the doctrine of good faith and fair dealing
to complain of the very conduct that the contract expressly
permits. See Precision Pine & Timber, Inc. v. United
States,
596 F.3d 817, 831 (Fed. Cir. 2010) (“The implied
duty of good faith and fair dealing cannot expand a party’s
contractual duties beyond those in the express contract or
create duties inconsistent with the contract’s provisions.”).
For the reasons set forth in parts II-A and II-B above,
the contract itself provides other avenues of relief for BGT
that preempt the need to invoke the doctrine of good faith
and fair dealing. BGT’s complaints regarding the Navy’s
practice of communicating directives other than through
the contracting officer’s signed writing are fully addressed
by BGT’s alternative theories for relief under the govern-
ment property clause and the fixed-price changes clause as
we have construed them. See Hickcox-Huffman v. US Air-
ways, Inc.,
855 F.3d 1057, 1066 (9th Cir. 2017) (“[Appel-
lant] has sufficiently alleged that [appellee] breached an
express provision of terms of transportation and thus need
not rely on this interpretive doctrine [of good faith and fair
dealing].”); Cruz v. FXDirectDealer, LLC,
720 F.3d 115, 125
(2d Cir. 2013) (finding good faith and fair dealing redun-
dant “when a breach of contract claim, based upon the
same facts, is also pled”); CFS Int’l Cap. Corp. v. United
States,
118 Fed. Cl. 694, 701 (2014) (same). Moreover, be-
cause the application of the “shall consider” language in the
government property clause already imposes a duty of good
faith on the Navy, there is no justification for invoking an
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22 BGT HOLDINGS LLC v. UNITED STATES
extra-contractual duty of good faith that would be redun-
dant of the duty imposed by that clause.
Although BGT relies on the doctrine of good faith and
fair dealing as a separate ground for relief, that claim is
based on the same set of facts as BGT’s other claims. The
contract itself defines the parties’ respective rights in light
of those facts. If the contract had expressly authorized the
Navy to withdraw the GFE without consequence, the par-
ties’ rights would be settled by the contract, and the duty
of good faith and fair dealing would have no role to play in
resolving this dispute. Because we interpret the contract
to provide BGT a mechanism for obtaining compensation
for the withdrawal of GFE, BGT’s rights are likewise gov-
erned by the contract, and the doctrine of good faith and
fair dealing cannot be employed to readjust those rights.
We therefore affirm the dismissal of BGT’s claim of breach
of good faith and fair dealing.
III
In sum, we vacate the Claims Court’s dismissal of
BGT’s claims of constructive change through ratification,
official change through waiver, and breach for failure to
provide an equitable adjustment, and we remand on those
claims for further proceedings consistent with this opinion.
We affirm the Claims Court’s dismissal of BGT’s claim of
breach of the implied duty of good faith and fair dealing.
No costs.
AFFIRMED IN PART, VACATED IN PART, AND
REMANDED
