Bgt Holdings LLC v. United States ( 2019 )

In the United States Court of Federal Claims
No. 18-178C
(E-Filed: April 5, 2019)
)
BGT HOLDINGS, LLC, )
) Motion to Dismiss; RCFC
Plaintiff, ) 12(b)(6); Equitable
) Adjustment; Breach of
v. ) Contract; Breach of Implied
) Duty of Good Faith and Fair
THE UNITED STATES, ) Dealing; 48 C.F.R. § 52.245-1
) (2012).
Defendant. )
)
Milton C. Johns, Tysons, VA, for plaintiff.
Borislav Kushnir, Trial Attorney, with whom were Chad A. Readler, Acting Assistant
Attorney General, Robert E. Kirschman, Jr., Director, Elizabeth M. Hosford, Assistant
Director, Commercial Litigation Branch, Civil Division, United States Department of
Justice, Washington, DC, for defendant.
OPINION AND ORDER
CAMPBELL-SMITH, Judge.
On August 17, 2018, plaintiff BGT Holdings, LLC (BGT), filed its first amended
complaint in which it alleges that defendant breached a contract under which plaintiff
was to provide a gas turbine generator set to the United States Navy. See ECF No. 10.
Defendant has moved to partially dismiss plaintiff’s amended complaint, pursuant to Rule
12(b)(6) of the Rules of the United States Court of Federal Claims (RCFC). See ECF No.
13. Also before the court are plaintiff’s response to defendant’s motion to dismiss, ECF
No. 14, and defendant’s reply in support of its motion, ECF No. 15. For the following
reasons, defendant’s motion for partial dismissal is GRANTED.
I. Background
On October 27, 2014, the Navy awarded contract number N65540-15-C-0001 to
BGT under which plaintiff was to provide a “stand-alone, complete outdoor-rated air
cooled dual fuel LM2500 Gas Turbine Generator Set (GTGS) using GFE” (Government
Furnished Equipment) to the Navy “at their site in Philadelphia, Pennsylvania.” ECF No.
10 at 2.
Under the terms of the contract, the Navy was obligated to provide certain
equipment to plaintiff for use on the project. The relevant contract language reads as
follows:
4.3 Government Furnished Equipment (GFE). Listed below is the GFE
to be provided to the Contractor for use in assembling the GTGS:
1. Liquid fuel LM2500PC Gas Turbine engine and power turbine
2. Gas Turbine enclosure with base, engine mounts and
miscellaneous hardware (List provided in Appendix E)
3. Engine inlet bellmount, water wash nozzles & plenum with
flexible interface connection
4. Exhaust diffuser & collector with flexible interface connection
5. Engine High Speed power output flexible coupling
6. Controls Option two (2) GFE Controller (MicroNet Plus)
ECF No. 10-1 at 23. Plaintiff acknowledges that the Navy complied with these
requirements “[w]ith the exception of the exhaust collector and engine mounts.” ECF
No. 10 at 3.
The contract incorporated a long list of provisions from the Federal Acquisition
Regulation (FAR), including section 52.245-1, Government Property. See ECF No. 10-1
at 45. That section reads, in relevant part:
(d) Government-furnished property.
...
2
(3)(i) The Contracting Officer may by written notice, at any
time—
(A) Increase or decrease the amount of Government-
furnished property under this contract;
(B) Substitute other Government-furnished property
for the property previously furnished, to be
furnished, or to be acquired by the Contractor for
the Government under this contract; or
(C) Withdraw authority to use property.
(ii) Upon completion of any action(s) under paragraph
(d)(3)(i) of this clause, and the Contractor’s timely
written request, the Contracting Officer shall consider
an equitable adjustment to the contract.
...
(i) Equitable adjustment. Equitable adjustments under this clause shall
be made in accordance with the procedures of the Changes clause.
However, the Government shall not be liable for breach of contract
for the following:
...
(3) An increase, decrease, or substitution of Government-furnished
property.
48 C.F.R. § 52.245-1(d)(3)(i)-(ii) & (i)(3) (2012).
With regard to changes that may be made to the contract terms, the contract
provides as follows:
(a) Except as specified in paragraph (b) below, no order, statement, or
conduct of Government personnel who visit the Contractor’s facilities or in
any other manner communicates with Contractor personnel during the
performance of this contract shall constitute a change under the “Changes”
clause of this contract.
3
(b) The Contractor shall not comply with any order, direction or request
of Government personnel unless it is issued in writing and signed by the
Contracting Officer, or is pursuant to specific authority otherwise included
as a part of this contract.
(c) The Contracting Officer is the only person authorized to approve
changes in any of the requirements of this contract and notwithstanding
provisions contained elsewhere in this contract, the said authority remains
solely the Contracting Officer’s. In the event the [C]ontractor effects any
change at the direction of any person other than the Contracting Officer, the
change 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. The address and telephone number of the
Contracting Officer is:
John Stefano
Naval Surface Warfare Center Carderock Division
5001 South Broad Street
Philadelphia, PA 19112-1403
John.stefano@navy.mil
(215) 897-8437
ECF No. 10-1 at 55.
Plaintiff alleges that “[t]he Navy informed BGT that it would not release the
exhaust collector and the engine mounts, unless BGT provided the Navy with the cost
savings in return, that is, a decrease in the total amount of the firm fixed price contract.”
ECF No. 10 at 4. Plaintiff further alleges that it was instructed to address future
correspondence to “‘Carolyn McCloskey and Suzanne Onesti directly. They will be the
conduits to the larger Navy team. This is to ensure the right people are taking Actions.’”
Id. (quoting an uncited source). “Ms. Onesti also emphasized the importance of
centralized communication, telling BGT that as the Procurements Manager, she was the
contact for ‘questions about the SOW or requirements requiring a response from the
government, or if you need to request dimensions, drawings or specs, your email needs to
be address[ed] to Carolyn or me, or preferably both.” Id. at 4-5 (quoting an uncited
source). According to plaintiff “it was the usual course of performance that any decision
by the Contracting Officer was conveyed to BGT by either Ms. Onesti or Ms.
McCloskey.” Id. at 5.
Plaintiff also states as follows: “As the Contracting Officer for the GTGS
program, Mr. Stefano was the person who communicated his decision to BGT no later
than December 2, 2014 that absent cost savings, on behalf of the Navy, he would not
4
release the exhaust collector and engine mounts to it.” Id. Plaintiff does not allege that
this decision was communicated in writing and signed by the contracting officer.
In an email dated January 16, 2015, plaintiff asked Ms. Onesti to confirm “that
there is no charge” for the Navy’s exhaust collector. Id. Ms. Onesti replied, as follows:
For the Exhaust Collector, the action is for BGT to identify the costs from
your proposal that were directly associated with buying or manufacturing
your own Exhaust equipment. That cost would then be deducted from the
value of the contract or applied toward future options if BGT were to use the
GFE exhaust collector. So you actually don’t need cost data from us. If the
cost savings are not significant enough, our Program Manager may decide
instead to have you procure your own exhaust collector components.
(emphasis added).
Id.
Several days later, on January 23, 2015, plaintiff sent an email to Ms. Onesti
asking: “As we progress to the final stages of the GA, we now need the engine mounts
and flexible coupling that the Navy is furnishing to complete those drawings. When can
we arrange for pickup of those items?” Id. In response, Ms. Onesti wrote, on January 26,
2015: “Since BGT is developing their own turbine module, the mounts for the engine are
within the scope of the enclosure design. The mounts are included in the GFE turbine
module that was not utilized by BGT.” Id.
In late January 2015, after the Navy and plaintiff failed to agree on “cost savings”
related to the GFE, “the Navy informed BGT that it had reutilized the GFE exhaust
collector and engine mounts as fleet assets, and they were no longer available to BGT
through the contract.” Id. at 5-6. Plaintiff acknowledges that the contracting officer, Mr.
John Stefano, “had the authority to ‘decrease the amount of Government-furnished
property under this contract.’” Id. at 6 (citing FAR 52.245-1(d)(3)(i)(A)). Plaintiff
alleges that Mr. Stefano was the only person authorized to make such a decision, see id.,
but states that Ms. Onesti, not Mr. Stefano, communicated the decision to plaintiff, see id.
at 9.
In early 2015, plaintiff provided several progress reports to the Navy that included
discussion of the “issue of cost savings in exchange for the use of the exhaust collector
and engine mounts.” Id. at 7. Plaintiff alleges that the contracting officer received these
reports, and as such, “knew or should have known that BGT was confronted with the
decision of whether to use the Navy’s GFE and provide it with a ‘cost savings to the
project,’ or procure its own equipment in place of the GFE.” Id.
5
In April 2015, because the Navy had refused to provide the GFE, plaintiff
“purchased both an exhaust collector and engine mounts in the commercial market,”
which were “identical” to the equipment that would have been provided by the Navy
under the contract. Id. at 6. Plaintiff purchased the equipment because it “was
contractually obligated to manufacture a Gas Turbine Generator Set,” and it is impossible
to do so “without incorporating both an exhaust collector and engine mounts.” Id.
The Navy accepted delivery of the GTGS from plaintiff, and made its final
payment on the contract in December 2016. See id. at 10. Plaintiff had submitted a
claim to the contracting officer including a request for an equitable adjustment in the
amount of $610,775 as a result of the Navy’s GFE decision, on November 1, 2016. See
id. On May 30, 2017, the contracting officer denied plaintiff’s claim as to the GFE. See
id.
In its amended complaint, plaintiff alleges five counts: (1) “Count I. Constructive
Change—Equitable Adjustment for the Cost of Exhaust Collector and Engine Mounts,”
id. at 3-11; (2) “Count II. Breach of Contract (Failure to provide GFE),” id. at 11; (3)
“Count III. Breach of Duty of Good Faith and Fair Dealing (Failure to provide GFE),”
id. at 11-12; (4) “Count IV. Constructive Change—Equitable Adjustment—Increased
Cost of Water Treatment Plant,” id. at 12-14; and (5) “Count V. Equitable Adjustment—
Costs Resulting from Delay Within the Control of the Government,” id. at 14-16. In its
motion for partial dismissal, ECF No. 13, defendant moves to dismiss the first three of
these counts for failure to state a claim upon which relief can be granted, pursuant to
RCFC 12(b)(6). 1
II. Legal Standards
A complaint should be dismissed under RCFC 12(b)(6) “when the facts asserted
by the claimant do not entitle him to a legal remedy.” Lindsay v. United States, 295 F.3d
1252, 1257 (Fed. Cir. 2002). To survive a motion to dismiss, a complaint must contain
factual allegations that are “enough to raise a right to relief above the speculative level.”
Bell Atl. Corp. v. Twombly, 550 U.S. 544, 545 (2007). The basis for relief “requires
more than labels and conclusions, and a formulaic recitation of the elements of a cause of
action will not do.” Id. at 555 (citations omitted). However, “[i]n ruling on a RCFC
12(b)(6) motion to dismiss, the court must accept as true the complaint’s undisputed
factual allegations and should construe them in a light most favorable to plaintiff.”
1
Plaintiff alleges additional facts relevant to portions of the amended complaint not
at issue in defendant’s motion for partial dismissal. See ECF No. 10 at 12-16 (detailing
facts relevant to Counts IV and V). As such, the court has not recited those facts in this
opinion.
6
Bristol Bay Area Health Corp. v. United States, 110 Fed. Cl. 251, 259 (2013) (citing
Gould, Inc. v. United States, 935 F.2d 1271, 1274 (Fed. Cir. 1991)).
III. Analysis
A. Plaintiff Is Not Entitled to Equitable Adjustment
In the first count of the amended complaint, plaintiff seeks an equitable adjustment
in the amount of the expense it incurred to purchase the exhaust collector and engine
mounts that defendant did not provide. See ECF No. 10 at 3-11. “Equitable adjustments
are corrective measures that make a contractor whole when the Government modifies a
contract.” Int’l Data Prods. Corp. v. United States, 492 F.3d 1317, 1325 (Fed. Cir. 2007)
(citing Ets-Hokin Corp. v. United States, 190 Ct. Cl. 668, 674 (1970); see also Aydin
Corp. v. Widnall, 61 F.3d 1571, 1577 (Fed. Cir. 1995) (“Where it requires a constructive
change in a contract, the Government must fairly compensate the contractor for the costs
of the change.”). In order to be effective, such modifications must be made by an agent
with actual authority to bind the government. See Winter v. Cath-dr/balti, Joint Venture,
497 F.3d 1339, 1344 (Fed. Cir. 2007) (“Where a party contracts with the government,
apparent authority of the government’s agent to modify the contract is not sufficient; an
agent must have actual authority to bind the government.”) (citing Trauma Serv. Grp. v.
United States, 104 F.3d 1321, 1325 (Fed. Cir. 1997)).
The contract at issue incorporates the “Government Property” FAR provision. See
ECF No. 10-1 at 45 (incorporating 48 C.F.R. § 52.245-1). That provision specifies that
“equitable adjustments under this clause shall be made in accordance with the procedures
of the Changes clause” of the contract. 48 C.F.R. § 52.245-1(i). The changes clause, in
turn, provides:
(a) Except as specified in paragraph (b) below, no order, statement, or
conduct of Government personnel who visit the Contractor’s facilities or in
any other manner communicates with Contractor personnel 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 unless it is issued in writing and signed by the
Contracting Officer, or is pursuant to specific authority otherwise included
as a part of this contract.
(c) The Contracting Officer is the only person authorized to approve
changes in any of the requirements of this contract and notwithstanding
provisions contained elsewhere in this contract, the said authority remains
7
solely the Contracting Officer’s. In the event the [C]ontractor effects any
change at the direction of any person other than the Contracting Officer, the
change 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. The address and telephone number of the
Contracting Officer is:
John Stefano
Naval Surface Warfare Center Carderock Division
5001 South Broad Street
Philadelphia, PA 19112-1403
John.stefano@navy.mil
(215) 897-8437
ECF No. 10-1 at 55. This provision establishes Mr. Stefano as the agent with actual
authority to change the contract on defendant’s behalf, so long as any change is in writing
and signed.
As an initial matter, plaintiff has not stated a claim that demonstrates its
compliance with this contract term. Plaintiff makes much of its allegation that the
contracting officer “made the decision to withdraw the GFE from the Contract.” ECF
No. 14 at 14; see also ECF No. 10 at 9. In support of this assertion, plaintiff repeatedly
cites to seven paragraphs of its amended complaint, which read, as follows:
23. As the Contracting Officer for the GTGS program, Mr. Stefano was
the person who communicated his decision to BGT no later than December
2, 2014 that absent cost savings, on behalf of the Navy, he would not release
the exhaust collector and engine mounts to it.
...
25. On January 16, 2015, Ms. Onesti replied:
For the Exhaust Collector, the action is for BGT to identify the costs from
your proposal that were directly associated with buying or manufacturing
your own Exhaust equipment. That cost would then be deducted from the
value of the contract or applied towards future options if BGT were to use
the GFE exhaust collector. So you actually don’t need cost data from us. If
the cost savings are not significant enough, or Program Manager may decide
instead to have you procure your own exhaust collector components.
(emphasis added).
8
...
28. In late January 2015, after the Navy and BGT were unable to come to
agreement on “cost savings” in exchange for the GFE, the Navy informed
BGT that it had reutilized the GFE exhaust collector and engine mounts as
fleet assets, and they were no longer available to BGT through the contract.
29. As the Contracting Officer, Mr. Stefano had the authority to “decrease
the amount of Government-furnished property under this contract.” Contract
p. 44 (incorporating FAR 52.245-1(d)(3)(i)(A)). Put another way, every item
of GFE listed in the Contract, including the exhaust collector and engine
mounts, was under the control of Mr. Stefano for use only in this Contract.
In order for the Navy to reutilize any GFE for a purpose other than Contract
N65540-15-C-0001, Mr. Stefano’s permission was necessary.
...
39. Mr. Stefano made the decision to decrease the amount of GFE in the
contract no later than when he permitted the exhaust collector and engine
mounts to be withdrawn from the contract and reutilized as fleet assets.
40. Within the GTGS program, Mr. Stefano was also referred to as the
“Program Manager.”
41. In his position as Contracting Officer, Mr. Stefano directed and
controlled the actions of both Ms. Onesti and Ms. McCloskey within the
GTGS program.
ECF No. 10 at 5-7.
Nowhere in these allegations, or elsewhere in its amended complaint, does
plaintiff allege that the change to the contract regarding GFE was “in writing and signed
by the Contracting Officer,” as required by the express terms of the contract. ECF No.
10-1 at 55. The contract also provides that absent compliance with the foregoing
requirement, “the change 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.” Id. Plaintiff is bound by the terms of the contract, and cannot state a
claim for equitable adjustment, unless it presents a viable defense to the contract. See
Forest Envtl. Servs. Co. v. United States, 5 Cl. Ct. 774, 777 (1984) (“It is well settled that
a party to a contract will be bound by the terms thereof, unless there exists some defense
to the contract, i.e., fraud, duress, or unless the contract is found to be unreasonable,
9
unconscionable or contrary to public policy, or it produces an egregious, unfair or
unreasonable result.”).
Plaintiff does not present a defense to the enforceability of the contract as a whole,
but instead claims that it is entitled to an equitable adjustment for the cost of the exhaust
collector and engine mounts, even absent compliance with the change provision in the
contract, on the theories of ratification and waiver. With regard to ratification, plaintiff
alleges that “Contracting Officer Stefano ratified Ms. Onesti’s decision to decrease the
GFE under the contract when he permitted the GFE exhaust collector and engine mounts
to be withdrawn from the contract and reutilized as fleet assets.” See ECF No. 10 at 8.
In addition, after citing caselaw related to the issue waiver, plaintiff alleges that:
In giving permission for GFE that was included in the contract to be
withdrawn from the contract and instead reutilized for other Navy purposes,
without issuing a formal written change order, Mr. Stefano intended to make
a change to the contract without relying on its right to do so only by written
notice.
Id. Defendant disagrees, and argues that the theories of ratification and waiver are
unavailable to plaintiff.
Defendant contends that plaintiff has contracted away its ability to make an
argument for ratification in these circumstances. Specifically, defendant asserts that
plaintiff “agreed ‘not [to] comply with any order, direction or request of Government
personnel unless it is issued in writing and signed by the Contracting Officer,’” and that
“‘any change at the direction of any person other than the Contracting Officer . . . will be
considered to have been made without authority.’” ECF No. 13 at 16 (quoting ECF No.
10-1 at 55) (emphasis added by defendant). This contract language, according to
defendant, is fundamentally at odds with the theory of ratification because plaintiff
“agreed that the contracting officer must personally issue and sign a written directive
before such a directive becomes binding on the Government.” Id.
Defendant makes a similar argument with respect to plaintiff’s theory that
defendant waived the right to enforce the requirements of the changes clause:
Because Mr. Stefano’s approval was required for the withdrawal of GFE, and
because the alleged withdrawal occurred without a written directive from
him, BGT claims that Mr. Stefano must have intended to modify the
Contract’s GFE provision without a written directive. In essence, BGT
argues that contract modification by an unauthorized agent constitutes a
presumptive waiver precisely because someone else had sole authority to
make the modification.
10
Id. (citations omitted). Allowing a waiver theory under such circumstances, in
defendant’s view, would “nullify the well-settled principle that only Government agents
with authority can bind the Government.” Id. And following this theory to its logical
conclusion, “if permission by authorized Government personnel could be assumed
whenever unauthorized personnel take action, the actions of unauthorized personnel
would always bind the Government.” Id. at 17.
In order to effectively waive a right to which a party would otherwise be entitled,
it must do so “knowingly and voluntarily.” Minesen Co. v. McHugh, 671 F.3d 1332,
1340 (Fed. Cir. 2012). Plaintiff acknowledges as much in its response, stating that
“[w]aiver requires only that the party waiving [a] right do so ‘voluntarily’ and
‘knowingly’ based on the facts of the case.” See ECF No. 14 at 14 (quoting Seaboard
Lumber Co. v. United States, 903 F.2d 1560, 1563 (Fed. Cir. 1990)). Plaintiff claims it
did not knowingly or intentionally relinquish its right to assert the defenses of ratification
and waiver, and therefore, the contract language should not be read to have that effect.
See ECF No. 14 at 12-14. Plaintiff also argues that “[n]othing in the Contract at issue in
this case ‘spell[s] out’ legal theories precluded by contract, and BGT certainly does argue
that it never waived such rights.” Id. (quoting an uncited source).
It strains credulity, however, for plaintiff to claim that it was unaware that the
specific contract language at issue here precludes its arguments relating to ratification and
waiver. As noted above, the changes clause in the contract states that plaintiff “shall not
comply with any order, direction or request” from anyone other than the contracting
officer, and puts plaintiff on notice that if “the contractor effects any change at the
direction of any person other than the Contracting Officer, the change will be considered
to have been made with no authority and no adjustment will be made in the contract price
to cover any increase in charges incurred as a result thereof.” ECF No. 10-1 at 55.
The language of the changes clause is both unambiguous and diametrically opposed to
plaintiff’s theories. Indeed, this contract provision, which plaintiff knew was part of the
contract, guards against the very conduct plaintiff now seeks to justify.
In addition, plaintiff makes no allegation in its amended complaint that its decision
to enter into the subject contract was not voluntary. As such, plaintiff was contractually
obligated to refrain from complying with Ms. Onesti’s attempted modification, absent
written and signed direction from Mr. Stefano. Plaintiff has not alleged that it sought,
much less obtained, such written consent to the GFE modification.
For these reasons, plaintiff’s claim for an equitable adjustment must be dismissed.
11
B. The Express Terms of the Contract Preclude Plaintiff’s Claim for Breach
of Contract
In the second count of the amended complaint, plaintiff alleges that defendant
breached its contractual duties in two respects: (1) by failing to “provide the GFE to
Plaintiff according to the plain terms of the Contract,” and (2) by refusing to allow an
equitable adjustment for the undelivered GFE. ECF No. 10 at 11. Neither of these
claims is valid.
First, for the reasons explained above, plaintiff’s claim that it was entitled to an
equitable adjustment is unfounded. As such, defendant could not have breached the
contract by rejecting plaintiff’s request. And second, even assuming that an authorized
government agent modified the contract by declining to provide the exhaust collector and
engine mounts, plaintiff’s claim that such a modification breached the contract is
explicitly barred by its terms.
The contract incorporates FAR section 52.245-1, titled “Government Property,”
see ECF No. 10-1 at 45, which reads, in relevant part:
(i) Equitable adjustment. Equitable adjustments under this clause shall
be made in accordance with the procedures of the Changes clause.
However, the Government shall not be liable for breach of contract
for the following:
...
(3) An increase, decrease, or substitution of Government-furnished
property.
48 C.F.R. § 52.245-1(i)(3) (emphasis added).
Clauses that limit the government’s liability have not uniformly been enforced in
all circumstances. Of particular concern are cases in which the limitations at issue do not
“disavow claims outright,” but instead seek to narrow a contractor’s recovery. Blue Lake
Forest Prods., Inc., v. United States, 86 Fed. Cl. 366, 380 n.21 (2009); id. at 378-79
(discussing cases in which the United States Court of Appeals for the Federal Circuit,
along with this court and its predecessors, have declined to enforce clauses limiting the
amount of the government’s liability “where the Government’s own unreasonable
conduct caused a delay or suspension”).
Limitations clauses have been enforced, however, when those clauses are
sufficiently explicit and direct. In Wells Brothers Co. v. United States, 254 U.S. 83
12
(1920), the contractor sought damages for an alleged construction delay caused by the
government. The clause limiting the government’s liability stated that “no claim shall be
made or allowed to the contractor for any damages which may arise out of any delay
caused by the United States.” Id. at 85. The Supreme Court of the United States upheld
the provision, explaining that its language “cannot be treated as meaningless and futile
and read out of the contract” and found that “its plain meaning is fatal to [Wells
Brothers’] claim.” Id. at 86-87. See also George A. Fuller Co. v. United States, 69 F.
Supp. 409, 412 (Ct. Cl. 1947) (acknowledging the force of Wells Brothers with regard to
cases in which the contract language at issue includes “express provisions . . . exempting
the Government from liability” for delay damages); Dept. of Nat. Res. and Conservation
of State of Montana v. United States, 1 Cl. Ct. 727, 734 (1983) (stating that “it is required
that where the government intends to exculpate itself from liability for its breach of
contract, it must manifest that intent in clear, direct and express language”).
It is difficult for the court to conceive of clearer exculpatory language than the
clause at issue in this case. When it entered into the contract to provide the Navy with a
GTGS, plaintiff agreed that “the Government shall not be liable for breach of contract for
. . . [a]n increase, decrease, or substitution of Government-furnished property.” 48 C.F.R.
§ 52.245-1(i)(3). But rather than address this language or any relevant caselaw directly,
plaintiff confines its response to an argument that the decision to withdraw GFE was a
cardinal change, and thus, a material breach of the contract. See ECF No. 14 at 17-18.
The court need not resolve whether the cardinal change doctrine could, in theory, apply to
a case in which the government does not provide GFE as contemplated by the contract.
The materiality of any alleged breach decidedly does not affect the outcome in this case
since a claim for breach of contract is not a remedy available to plaintiff.
Because the unambiguous terms of the contract clearly preclude claims for breach
in the present circumstances, the second count of plaintiff’s amended complaint must be
dismissed.
C. Breach of the Implied Duty of Good Faith and Fair Dealing
Plaintiff makes a claim for breach of the implied duty of good faith and fair
dealing in the third count of its amended complaint. See ECF No. 10 at 11-12. Plaintiff
alleges that “Defendant targeted its actions specifically toward Plaintiff to drive up
Plaintiff’s costs to perform.” Id. at 12. Plaintiff also claims that “Defendant specifically
refused to provide the contractually required GFE to frustrate and inhibit Plaintiff’s
ability to complete the performance of its contractual obligations.” Id.
As the Federal Circuit has explained, the implied duty of good faith and fair
dealing “imposes obligations on both contracting parties that include the duty not to
interfere with the other party’s performance and not to act so as to destroy the reasonable
13
expectations of the other party regarding the fruits of the contract.” Centex Corp. v.
United States, 395 F.3d 1283, 1304 (Fed. Cir. 2005). The Federal Circuit has also held
that “a party to a contract cannot use an implied duty of good faith and fair dealing to
‘expand [another] party’s contractual duties beyond those in the express contract or create
duties inconsistent with the contract’s provisions.’” Agility Pub. Warehousing Co. KSCP
v. Mattis, 852 F.3d 1370, 1384-85 (Fed. Cir. 2017) (quoting Metcalf Constr. Co. v.
United States, 742 F.3d 984, 994 (Fed. Cir. 2014)). Put another way, parties “cannot rely
on the implied covenant of good faith and fair dealing to change the text of their
contractual obligations.” Century Expl. New Orleans LLC v. United States, 745 F.3d
1168, 1179 (Fed. Cir. 2014).
Here, plaintiff alleges that defendant’s “refus[al] to provide the contractually
required GFE” was a breach of its implied duty of good faith and fair dealing. See ECF
No. 10 at 12. Under the terms of the contract, defendant was obligated to provide a list of
GFE, including a “Gas Turbine enclosure with base, and engine mounts and
miscellaneous hardware,” and an “exhaust diffuser & collector with flexible interface
connection.” ECF No. 10-1 at 23. Plaintiff alleges that defendant did not provide either
the engine mounts or the exhaust collector. See ECF No. 10 at 3.
Plaintiff’s claim for a breach of the implied duty of good faith and fair dealing
founders, however, upon consideration of FAR 52.245-1, which was incorporated by
explicit reference into the contract. The contracting officer was specifically permitted,
“by written notice, at any time [to] . . . [i]ncrease or decrease the amount of Government-
furnished property under this contract,” or to “[w]ithdraw authority to use property.” 48
C.F.R. § 52.245-1(d)(3)(i)(A), (C). In addition, FAR 52.245-1 states that “the
Government shall not be liable for breach of contract for . . . [a]n increase, decrease, or
substitution of Government-furnished property.” 48 C.F.R. § 52.245-1(i)(3).
In seeking to recover for defendant’s alleged breach of its implied duty of good
faith and fair dealing, plaintiff asks the court to find that defendant’s alleged decision to
decrease the amount of, or withdraw use of, certain GFE interfered with its contract
performance in an impermissible manner. Reaching this conclusion would require the
court to “change the text of [defendant’s] contractual obligations,” in contravention of
Federal Circuit precedent. Century Expl., 745 F.3d at 1179. The court accepts as true
plaintiff’s allegation that defendant did not provide the engine mounts or exhaust
collector. But in so doing, the defendant exercised a right given to it by the express terms
of the contract, and therefore could not have breached a contrary duty implied in the
contract. As such, the court cannot conclude that plaintiff has sufficiently alleged a claim
for defendant’s breach of its implied duty of good faith and fair dealing.
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IV. Conclusion
For the foregoing reasons, defendant’s motion for partial dismissal, ECF No. 13, is
GRANTED.
Pursuant to RCFC 54(b), there being no just reason for delay, and for the reasons
stated in this opinion, the clerk’s office is directed to ENTER final judgment in favor of
defendant, DISMISSING Counts I, II, and III of plaintiff’s amended complaint, with
prejudice.
Defendant is directed to FILE its answer or otherwise respond to the remaining
counts, Counts IV and V, of plaintiff’s amended complaint, on or before May 6, 2019.
IT IS SO ORDERED.
s/Patricia E. Campbell-Smith
PATRICIA E. CAMPBELL-SMITH
Judge
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