Tigerswan, Inc. v. United States , 110 Fed. Cl. 336 ( 2013 )

The United States Court of Federal Claims
No. 12-62C
(Filed: April 2, 2013)
Opinion Originally Filed Under Seal on March 29, 2013
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*
TIGERSWAN, INC., *
*
* Breach of Contract; Bid Protest;
Plaintiff, * Termination for Convenience; Implied
* Duty of Good Faith and Fair Dealing;
v. * Bad Faith
*
THE UNITED STATES, *
*
Defendant. *
*
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Terrence M. O’Connor, McLean, VA, for plaintiff.
John Sinclair Groat, U.S. Department of Justice, Washington, DC, with whom were
Stuart F. Delery, Acting Assistant Attorney General, and Jeanne E. Davidson, Director,
for defendant. Robert B. Neill and CPT Michael E. Barnicle, U.S. Army Legal Services
Agency, Arlington, VA, of counsel.
OPINION
FIRESTONE, Judge
This case involves various non-commercial item procurement contracts for certain
Iraq-based security services that had been sought by the Department of Defense (“DOD”)
to support the Task Force for Business and Stability Operations (“TFBSO”), a command
resource established by the DOD to promote economic stabilization in Iraq and
Afghanistan. DOD awarded two contracts to TigerSwan, Inc. (“the plaintiff” or
“TigerSwan”), but then terminated each for convenience. During this period, DOD
awarded sole-source contracts for the work to the incumbent, Aegis Defence Services,
Ltd. (“Aegis”). The plaintiff alleges that these actions by DOD give rise to a breach of
contract claim for improper termination for convenience on the ground that DOD
improperly steered TigerSwan’s contract work to Aegis. The plaintiff also alleges that
DOD's actions were taken “in connection” with procurements and seek bid preparation
costs.
Specifically, the plaintiff asserts a breach of contract claim under the Contract
Disputes Act (“CDA”), 41 U.S.C. § 7101 et seq. and the Tucker Act, 28 U.S.C. § 1491(a)
(2012), arising from the termination for convenience of the last contract awarded to
TigerSwan. For its breach of contract claim, the plaintiff seeks $238,352.72 for lost
anticipatory profits and $35,539.06 for line of credit interest. In its second claim, brought
under 28 U.S.C. § 1491(b), TigerSwan alleges that the DOD violated federal statutes by
cancelling the solicitations under which TigerSwan was awarded its two contracts and in
awarding sole-source contracts for the same underlying work to Aegis. With regard to its
bid protest claim, the plaintiff seeks bid and proposal costs of $92,697.10 and $28,038.09
for the first and second contracts respectively.
Pending before the court is the government’s motion for judgment on the
pleadings 1 seeking to dismiss TigerSwan’s claims. The government argues that since
1
The government initially filed a motion to dismiss for failure to state a claim upon which relief
can be granted pursuant to Rule 12(b)(6) of the Rules of the United States Court of Federal
2
TigerSwan has not alleged that the government terminated its contracts for convenience
with the intent of harming the plaintiff, TigerSwan has failed to allege the “bad faith”
necessary to establish a breach of contract for improper or wrongful termination for
convenience. For this reason, the government argues, TigerSwan has not stated a claim
for breach of contract.
With regard to the bid protest claim under section 1491(b), the government seeks
dismissal on the grounds that TigerSwan did not incur and cannot seek bid preparation
costs for the sole-source contracts awarded to Aegis—a point TigerSwan acknowledges.
The government argues that TigerSwan cannot obtain bid preparation costs for contracts
it received. For this reason, the government argues that TigerSwan has failed to state a
claim upon which relief can be granted under 28 U.S.C. § 1491(b).
For the reasons discussed below, the government’s motion for judgment on the
pleadings is GRANTED-IN-PART and DENIED-IN-PART.
I. FACTUAL BACKGROUND AND TIGERSWAN’S CLAIMS
BEFORE THIS COURT
Unless noted, all facts are taken from the pleadings and attached exhibits. All
facts uncontested unless stated.
Claims (“RCFC”). See Def.’s Mot., ECF No. 22. The government, however, did not assert this
defense in its answer, rendering its motion improper. See RCFC 12(b) (“A motion asserting any
of these defenses [including a 12(b)(6) defense] must be made before pleading if a responsive
pleading is allowed.”). RCFC 12(h)(2)(B) provides, however, that the defense of failure to state
a claim upon which relief can be granted may be raised by an RCFC 12(c) motion for judgment
on the pleadings. In such circumstances, courts consider improperly filed motions to dismiss as
motions for judgment on the pleadings. See, e.g., Peterson v. United States, 68 Fed. Cl. 773, 776
(2005) (construing a motion to dismiss for failure to state a claim filed after the answer as a
motion for judgment on the pleadings). This is more a matter of form over substance since
courts still apply the applicable standards of a 12(b)(6) motion to dismiss to a 12(c) judgment on
the pleadings. Cary v. United States, 552 F.3d 1373, 1376 (Fed. Cir. 2009).
3
A. The 6001 contract for security and protection services in Iraq and its
termination
On June 22, 2006, the DOD created the TFBSO which is described as “a
command resource in direct support of the economic line of operation with the
Combatant Commander’s Campaign Plan, with 400 highly qualified business specialists
and government personnel supporting military and civil affairs units, provincial
reconstruction teams, Iraqi Security Forces, and senior Government of Iraq officials.”
Pl.’s Ex. 1, 6001 contract 31, ECF No. 1-3. In support of its goal of Iraqi “economic
stabilization,” TFBSO functions, in part, to provide security services to facilitate
investment and commerce in the county. Id. The DOD held a full and open competition
for a non-commercial item contract, designated as contract number W91GDW-10-C-
6001 (the “6001 contract”). The objective of the 6001 contract was to:
provide all resources, including experienced multi-disciplined security
personnel, equipment, weapons, armored vehicles, mobilization multiple
self-sustaining life support camps (Basra, Baghdad, and two optional
additional locations), surge capability, security and intelligence analysis,
incidental deliverable, and project management necessary to ensure the
security and safety of TFBSO personnel and sponsored visitors operating
throughout all regions of Iraq.
Pl.’s Ex. 1, 6001 contract 31. The competition was conducted between January 31, 2010
and February 27, 2010. The DOD awarded the 6001 contract to TigerSwan on March 1,
2010 in the amount of $3,949,791.35 for a 183-day performance period. AR 764. The
base period was to run from June 25, 2010 to December 24, 2010 with an option period
running from December 25, 2010 to June 24, 2011.
4
Following the award to TigerSwan, two unsuccessful bidders sought to have the
award set aside. On March 10, 2010, nine days after TigerSwan received the 6001
contract award, Aegis filed a bid protest before the Government Accountability Office
(“GAO”). AR 857. Another unsuccessful bidder on the 6001 contract, AISG/Patriot
Group Partnership, protested before the United States Court of Federal Claims (“CFC”).
The DOD terminated the 6001 contract for convenience on April 23, 2010, before either
the GAO or the CFC addressed the merits of the protests. The DOD determined that the
situation in Iraq had changed such that it no longer needed many of the line items and
services required by the 6001 contract. TigerSwan submitted a letter to the DOD on May
3, 2010 protesting the termination for convenience of the 6001 contract. 2 Subsequently,
on May 23, 2010, TigerSwan submitted its damages claim to the DOD in relation to the
6001 termination for convenience in the amount of $56,246.24. 3
B. The 6005 contract for security and protection services in Iraq, the two
Aegis bridge contracts, and Aegis’s GAO protest
On June 7, 2010, nearly two weeks after the termination for convenience of the
6001 contract, the DOD issued a new solicitation for contract number W91GDW-10-C-
6005 (the “6005 contract”). Due to time constraints, the DOD limited the competition to
the vendors that previously submitted proposals for the 6001 contract, including
TigerSwan and Aegis, and provided only five days to submit bid proposals (extended
2
TigerSwan was unable to provide the May 3, 2010 letter and additionally asserts its belief that
the Contracting Officer never issued a response to that letter.
3
On September 24, 2010, TigerSwan and the DOD eventually settled for the full amount
requested by TigerSwan and the agreement was reduced to writing as Modification Number
P00005 to the 6001 contract. Pl.’s Ex. 6, Modification P00005, ECF No. 1-8.
5
from two days). AR 937, 997. The period of performance was 220 days. The DOD
received three proposals. TigerSwan proposed a price of $5,878,082.44, Aegis proposed
a price of $8,754,411, and a third offeror proposed a price of $15,940,217.35. TigerSwan
was awarded the 6005 contract on June 24, 2010. AR 1181.
Between June 19, 2010 and June 22, 2010, prior to the June 24, 2010 contract
award to TigerSwan, the DOD executed a Justification and Approval for Other than Full
and Open Competition (the “June 19 Aegis Bridge Contract J&A”) to allow Aegis, the
incumbent, to continue performing under a thirty-day sole-source bridge contract from
June 25, 2010 to July 24, 2010. Pl.’s Ex. 8, June 19 Aegis Bridge Contract J&A, ECF
No. 1-10. In the June 19 Aegis Bridge Contract J&A, the DOD reasoned that there
existed “Only One Responsible Source” as justification for the bridge contract to Aegis.
Id. at 1. It further stated:
AEGIS, as the current incumbent, is the only contractor able to meet the
requirement of 25 Jun 2010 and be 100% ready to perform. While a
limited competition procurement amongst contractors who had previously
submitted offers on security services for TFBSO is being solicited the
process will not be completed in time to begin service on 25 Jun 2010. . . .
The incumbent contractor has both the manpower in Iraq that is readily
available and the required [] training to operate as the provider of TFBSO
[Personal Security Detail] services.
Id. at 1-2. Ms. Regina A. Dubey, the DOD’s Program Director for the TFBSO, was the
first signatory for the June 19 Aegis Bridge Contract J&A.
On July 2, 2010, Aegis filed a protest before the GAO in connection with
TigerSwan’s 6005 contract award. AR 1243. The DOD received the notice of protest
three days later on July 5, 2010 and issued a stop work order to TigerSwan for the 6005
6
contract work on the same day. While Aegis’s protest was pending before the GAO, on
July 20, 2010 4 the DOD prepared a Sole Source Justification for Simplified Acquisition
Under The Test Program For Commercial Items (the “July 20 Aegis Bridge Contract
J&A”), allowing Aegis to continue performance on the underlying work for four months
beginning July 25, 2010 (the day after the June 19 Aegis Bridge Contract J&A was to
expire) through November 24, 2010. Pl.’s Ex. 9, July 20 Aegis Bridge Contract J&A 2,
ECF No. 1-11. The July 20 Aegis Bridge Contract J&A was again signed by Ms. Dubey.
On October 1, 2010 the GAO issued a decision denying Aegis’s 6005 contract
award protest. Notwithstanding the GAO’s denial of Aegis’s protest, the DOD
terminated TigerSwan’s contract for convenience on October 9, 2010. The notice of
termination stated only that the 6005 contract “shall be terminated for the Government’s
convenience.” Pl.’s Ex. 10, Notice of Termination for Convenience, ECF No. 1-12.
TigerSwan contends that the notification contained no further justification for the
termination for convenience. 5
4
In its complaint, TigerSwan states that the July 20 Aegis Bridge Contract J&A, was issued on
August 3, 2010. Compl. ¶ 31. The July 20 Aegis Bridge Contract J&A, however, has six
signatures dated between July 20, 2010 and July 27 2010. Pl.’s Ex. 9, July 20 Aegis Bridge
Contract J&A 2-3. The court notes, moreover, that the latter three signatures are dated in June
rather than in July but will assume, absent reason to believe otherwise, that the dates were
mistakes.
5
On October 21, 2010, TigerSwan submitted a settlement proposal for $92,949.09, reserving its
right to bring a contractual claim regarding the 6005 contract termination for convenience. Pl.’s
Ex. 11, Memo for Record, Contract Modification, ECF No. 1-13. TigerSwan subsequently
submitted a revised settlement proposal for the 6005 contract adding ten percent for general and
administrative costs for a total of $98,111.85. On October 30, 2010, the DOD released a final
settlement invoice concluding that TigerSwan’s proposal was reasonable. TigerSwan did not
sign the 6005 Settlement Modification until January 14, 2011. TigerSwan reserved its right to
appeal, which was acknowledged by the DOD in an email exchange.
7
C. The sole-source award to Aegis
At some point on or around October 25, 2010, the DOD prepared and approved
another Justification and Approval for Other than Full and Open Competition (“October
25, 2010 J&A”) to justify the award of a sole-source commercial item contract to Aegis,
Contract Number W91GDW-11-C-9000 (“Aegis sole-source contract”). AR 1575. The
October 25, 2010 J&A concluded that Aegis was the only contractor that could meet the
DOD’s requirements for the 6005 contract work because TigerSwan could not perform
within the allotted performance period as a result of Aegis’s unsuccessful GAO protest:
AEGIS, the current incumbent, is the only contractor able to meet the
requirement by 25 November 2010 and be 100% ready to perform. The
current sole source contract performance began on 25 July 2010 and expires
on 24 November 2010. It served as a bridge to continue services until a
GAO protest was resolved for the previously completed contract for PSD
service. The previous contract was awarded to TigerSwan Inc. on 24 June
2010. The contracting officer received notice of a protest on 2 July 2010
and issued a Stop Work Order to TigerSwan Inc. on 5 July 2010. Due to
the protest, TigerSwan Inc. could not continue mobilizing nor continue
services as originally planned.
Pl.’s Ex. 13, October 25, 2010 J&A 1, ECF No. 1-15. It also stated that the timeframe
and costs associated with mobilizing the workforce justified the sole-source award to
Aegis. The October 25, 2010 J&A also reflected the DOD’s concern that TigerSwan’s
abilities to attract and retain a sufficient work force and to develop the relationships
necessary to adequately perform the contract’s requirements were adversely affected by
the limited time remaining on the original 6005 contract. The Aegis sole-source contract
was awarded on November 16, 2010 for a two-month performance period from
November 25, 2010 to January 21, 2011.
8
The October 25, 2010 J&A cited FAR § 13.501(a)(ii) and 10 U.S.C. §
2304(g)(1)(B) as authority to award a sole-source contract. Although the DOD
designated the Aegis sole-source contract as a firm-fixed price contract, it included line
items that were cost-reimbursement items and one item that was a cost-plus-percentage of
cost item. In the justification document for the Aegis sole-source contract, the DOD
concluded that market research was “N/A.” The October 25, 2010 J&A was signed by
Ms. Dubey.
D. TigerSwan’s FOIA request and claims before the DOD
On November 1, 2010, TigerSwan filed a Freedom of Information Act (“FOIA”)
request in an effort to discover additional reasoning behind the DOD’s termination of its
contracts. It sought a range of documentation including email, letters, memoranda,
reports, and surveys relating to the terminations. A month later, on December 2, 2010, in
response to the FOIA request, the DOD provided only a single redacted email, which was
the email notifying TigerSwan of the DOD’s decision to terminate the 6005 contract.
TigerSwan had already received this document within the course of the DOD’s previous
contract administration. On December 17, 2010, TigerSwan appealed the DOD’s
response to the FOIA request.
On November 3, 2010, TigerSwan submitted a breach of contract claim to the
Contracting Officer (“CO”) asserting its belief that the terminations for convenience of
the 6001 and 6005 contracts were an abuse of discretion and made in bad faith. The
claim sought (1) labor and legal costs related to the alleged bad faith in the 6005 contract
termination for convenience; (2) an updated 6001 contract invoice seeking additional
9
labor costs; and (3) an updated invoice for the 6005 contract. On January 3, 2011,
TigerSwan received the December 22, 2010 CO’s decision on the claim, which granted
the labor and legal costs related to the 6005 termination for convenience claim but denied
the second two claims.
That same month, on January 20, 2011, TigerSwan sent the CO a demand for
reconsideration and added new information and damages to its claim. In this
reconsideration demand, TigerSwan alleged inconsistencies in the October 25, 2010 J&A
and alleged that the DOD improperly steered contractual work to Aegis through the sole-
source award. On February 2, 2011, the CO denied TigerSwan’s claims. On June 2,
2011, TigerSwan once again filed a claim alleging breach of contract while detailing bad
faith and improper handling of the 6005 contract. TigerSwan also alleged in this claim
before the CO a conflict of interest between the DOD and Aegis, which called into
question the October 25, 2010 J&A’s validity and subsequent sole-source contract to
Aegis. Specifically, TigerSwan alleged an improper conflict of interest stemming from a
relationship between Ms. Dubey and an Aegis team leader, Mr. Anthony Shopland,
assigned to the TFBSO team. On July 11, 2011, the DOD responded to the June 2, 2011
claim stating that it would not consider or provide a decision on the claim because the
alleged facts were known or should have been known at the time of the January 20, 2011
claim.
TigerSwan filed the present action before the CFC on January 30, 2012. Oral
argument on the briefing was held on March 20, 2013.
10
E. TigerSwan’s breach of contract claim
In its complaint, TigerSwan alleges that the DOD, “through a continuum of
offending and unreasonable conduct[,] endeavored to give Aegis, rather than
[TigerSwan], the benefits of the work to be performed under the 6001 and 6005 contracts
that had been awarded to [TigerSwan]” in breach of the implied duty of good faith and
fair dealing. Compl. ¶ 94. The termination for convenience of TigerSwan’s 6001
contract, according to TigerSwan, was “an apparent attempt to give Aegis a second
chance at winning the award in an open competition.” Compl. ¶ 95. Similarly, it alleges
that the DOD’s decision to terminate TigerSwan’s 6005 contract for convenience, rather
than lift the stop work order following Aegis’s unsuccessful bid protest, constituted a
breach of contract. Compl. ¶ 96.
TigerSwan further alleges that the sole-source award to Aegis violated various
provisions of the FAR and other federal law. Compl. ¶ 97. TigerSwan claims that the
DOD failed to “mitigate or even address an improper conflict of interest that existed
between the Agency and Aegis.” Compl. ¶ 97. TigerSwan alleges that all of these steps
were taken specifically to ensure that Aegis retained the work otherwise awarded to
TigerSwan under the 6001 and 6005 contracts. Compl. ¶ 97. TigerSwan seeks
$238,352.72 for lost anticipatory profits and $35,539.06 in interest charges in connection
to the 6005 contract.
F. TigerSwan’s bid protest claim
TigerSwan also alleges that the cancellation of the solicitations that led to the
award of the 6001 and 6005 contracts and the subsequent sole-source awards to Aegis
11
give rise to a claim under this court’s bid protest jurisdiction. “As a result of the
Agency’s improper sole-source award to Aegis, [TigerSwan] seeks recovery of its bid
and proposal costs for the 6001 and 6005 contracts, in the amount of $92,697.10 and
$28,038.90, respectively.” Compl. ¶ 112. TigerSwan makes multiple allegations of the
DOD’s failure to follow the Federal Acquisition Regulation (“FAR”) and other
applicable provisions in its justification of the sole-source contract to Aegis, which
TigerSwan contends was arbitrary, capricious, an abuse of discretion, and in violation of
law. Compl. ¶¶ 105-108. TigerSwan also claims that the alleged improper relationship
between Ms. Dubey and Mr. Shopland resulted in a manipulation of the 6001 and 6005
contracts and subsequent sole-source award to Aegis. Compl. ¶¶ 102-104.
II. DISCUSSION
A. Standard of Review
A motion for judgment on the pleadings may be made “[a]fter the pleadings are
closed—but early enough not to delay trial. . . .” RCFC 12(c). Judgment on the
pleadings is appropriate where there are no material facts in dispute and the moving party
is entitled to judgment as a matter of law. Forest Labs., Inc. v. United States, 476 F.3d
877, 881 (Fed. Cir. 2007). When considering a defendant’s motion for judgment on the
pleadings, the court “must assume each well-pled factual allegation to be true and indulge
in all reasonable inferences in favor of the nonmovant. . . .” Crusan v. United States, 86
Fed. Cl. 415, 418 (2009) (quoting Owen v. United States, 851 F.2d 1404, 1407 (Fed. Cir.
1988)). The court does not accept, however, assertions that amount to legal conclusions.
Garner v. United States, 85 Fed. Cl. 756, 758-59 (2009). “A motion for judgment on the
12
pleadings should be denied unless it appears to a certainty that plaintiff is entitled to no
relief under any state of facts which could be proved in support of his claim.” Id.
(quoting Branning v. United States, 215 Ct. Cl. 949, 950 (1977) (discussing a predecessor
rule to RCFC 12(c))). The trial court’s belief that the plaintiff is unlikely to prevail at
trial should not color its ruling on a motion for judgment on the pleadings. Owen, 851
F.2d at 1407.
As stated supra, courts apply the same standard for a motion for judgment on the
pleadings as they would for a 12(b)(6) motion to dismiss in cases where the latter is
“converted” into the former. Although facts are to be construed in favor of the plaintiff,
the “[f]actual allegations must be enough to raise a right to relief above the speculative
level . . . on the assumption that all the allegations in the complaint are true (even if
doubtful in fact). . . .” Bell Atl. Corp. v. Twombly, 550 U.S. 544, 555-56 (2007)
(citations omitted). This requires the plaintiff to set out enough facts to state a claim to
relief that is plausible on its face. Cary v. United States, 552 F.3d 1373, 1376 (citing
Twombly, 550 U.S. at 547). The plausibility standard is met when “the plaintiff pleads
factual content that allows the court to draw the reasonable inference that the defendant is
liable for the misconduct alleged.” In re Bill of Lading Transmission and Processing Sys.
Patent Lit., 681 F.3d 1323, 1331 (Fed. Cir. 2012) (quoting Ashcroft v. Iqbal, 556 U.S.
662, 678 (2009)).
13
B. Terminations for convenience and the implied duty of good faith and
fair dealing
Before turning to the government’s motion for judgment on the pleadings, the
court will first examine the legal context for challenging terminations for convenience
and for establishing breach of contract claims based on violations of the implied duty of
good faith and fair dealing—the two legal bases for the plaintiff’s breach of contract
claim. With this legal context established, the court will then turn to whether the plaintiff
has made sufficient allegations to survive the government’s motion under the applicable
12(b)(6) standards discussed above.
1. Legal standards for showing that a termination for convenience
was improper
The government’s right to terminate a contract for convenience without giving rise
to a breach of contract claim has its roots in military contracts. Specifically, it developed
as a mechanism by which the government could avoid large, unneeded military
procurements upon cessation of war and other hostilities. Krygoski Const. Co. v. United
States, 94 F.3d 1537, 1540 (Fed. Cir. 1996). Terminations for convenience are now
widely used across a range of military and civilian contracts. Because a proper
termination for convenience does not constitute a breach of contract, it limits the
monetary recovery a contract awardee can collect. Best Foam Fabricators, Inc. v. United
States, 38 Fed. Cl. 627, 637 (1997). Specifically, under the FAR, the contract awardee
may not recover anticipatory or consequential damages following a termination for
convenience. FAR §§ 49.202, 52.249-1 to 52.249-5. Instead, the government is liable
only for the contract awardee’s partial performance up to the time of the termination for
14
convenience and certain other costs delineated by law or by the contract’s termination
clause. See Rice Sys., Inc. v. United States, 62 Fed. Cl. 608, 620 n.15 (2004) (citations
omitted).
The Federal Circuit—and the former Court of Claims—have recognized that an
improper termination for convenience may give rise to a breach of contract claim when
the agency (1) terminates the contract in bad faith or (2) abuses its discretion in its
decision to terminate the contract. T & M Distribs., Inc. v. United States, 185 F.3d 1279,
1283 (Fed. Cir. 1999); Krygoski, 94 F.3d at 1541; Caldwell & Santmyer, Inc. v.
Glickman, 55 F.3d 1578, 1581 (Fed. Cir. 1995); see also Kalvar Corp. v. United States,
211 Ct. Cl. 192, 204 (1976). If a contractor can demonstrate that the agency’s
termination for convenience was improper, the contractor will not be limited to damages
identified in the termination for convenience clause. Keeter Trading Co. v. United States,
79 Fed. Cl. 243, 263 (2007). In such a case, traditional common law damages for breach
of contract will be available to the contractor. See Best Foam, 38 Fed. Cl. at 637-38.
Contractors face a high burden of proof for demonstrating an agency acted in “bad
faith” by terminating the contract for convenience. T & M Distribs., 185 F.3d at 1285.
To establish a breach based on bad faith in this context, the contractor must present clear
and convincing evidence that the government’s termination was made with the “intent to
injure” the contractor. Am-Pro Protective Agency, Inc. v. United States, 281 F.3d 1234,
1239-40 (Fed. Cir. 2002).
In determining whether the CO clearly" abused its discretion" in terminating a
contract for convenience, the court will consider four factors: (1) the CO’s bad faith, (2)
15
the reasonableness of the decision, (3) the amount of discretion delegated to the CO, and
(4) any violations of an applicable statute or regulation. See Keco Indus., Inc. v. United
States, 492 F.2d 1200, 1203-04 (Ct. Cl. 1974).
Finally, in addition to the foregoing grounds for breach, the Federal Circuit has
recognized that the government may be liable for breach of contract for an improper
termination for convenience when the government “contracts with a party knowing full
well that it will not honor the contract.” Krygoski, 94 F.3d at 1543-44 (quotations and
citations removed). In such circumstances, government knowledge that it will not honor
the contract is a prerequisite to such a claim. Caldwell, 55 F.3d at 1582 (citing Salsbury
Indus. v. United States, 905 F.2d 1518, 1521 (Fed. Cir. 1990)).
2. Legal standard for showing a breach of the implied duty of good
faith and fair dealing
A claim for breach of contract based on breach of the implied duty of good faith
and fair dealing is distinct from a claim for breach of contract based on an improper
termination for convenience. The implied duty of good faith and fair dealing is inherent
in every contract. Centex Corp. v. United States, 395 F.3d 1283, 1304 (Fed. Cir. 2005).
The duty requires that each party “do everything that the contract presupposes should be
done by a party to accomplish the contract’s purpose.” Stockton E. Water Dist. v. United
States, 583 F.3d 1344, 1365 (Fed. Cir. 2009) (citations and internal quotations omitted).
In other words, a party must not “act so as to destroy the reasonable expectations of the
other party regarding the fruits of the contract.” Centex, 395 F.3d at 1304.
16
In deciding whether there was a breach of this duty, the court examines the
circumstances surrounding the alleged breach. Fireman’s Fund Ins. Co. v. United States,
92 Fed. Cl. 598, 675 (2010) (citing C. Sanchez & Son v. United States, 6 F.3d 1539, 1542
(Fed. Cir. 1993)). Parties can show a breach of the implied duty of good faith and fair
dealing by proving lack of diligence, negligence, or a failure to cooperate. See Malone v.
United States, 849 F.2d 1441, 1445 (Fed. Cir. 1988). As this court has recently held,
proof of “bad faith” is not required to show a breach of the implied duty of good faith and
fair dealing in most cases. D’Andrea Bros. LLC v. United States, 96 Fed. Cl. 205, 222
n.24 (2010); see also Centex, 395 F.3d at 1304-06; Rivera Agredano v. United States, 70
Fed. Cl. 564, 574 n.8 (2006). Evidence of government intent to harm the contractor is
not ordinarily required.
Importantly, where the contract authorizes the government to take action that may
harm the contractor, the government may exercise that right without triggering a claim
for breach of good faith and fair dealing. Scott Timber Co. v. United States, 692 F.3d
1365, 1375 (Fed. Cir. 2012) (“[T]he assertion of a legitimate contract right cannot be
considered as violative of a duty of good faith and fair dealing.”) (quoting David Nassif
Assocs. v. United States, 644 F.2d 4, 12 (Ct. Cl. 1981)). Put another way, if the
government has the contractual right to terminate a contract for convenience, the
government may exercise that right without breaching the duty of good faith and fair
dealing. The government will be liable for breach of contract only if the termination for
convenience was improper under the standards set forth above.
17
C. TigerSwan alleges sufficient facts in its complaint to support a claim
for breach of contract based on an improper termination for
convenience of the 6005 contract.
The government argues that TigerSwan has failed to state a breach of contract
claim for wrongful termination for convenience on the grounds that TigerSwan has not
specifically alleged that the DOD terminated its contracts with an intent to harm plaintiff.
As such, the government contends, TigerSwan has failed to allege the “bad faith”
necessary to state such a breach of contract claim. Relatedly, the government argues that
the plaintiff’s reliance on the standards for a breach of the implied duty of good faith
dealing to state a claim is misplaced. The government argues that the plaintiff cannot
rely on the standards for the breach of the implied duty of good faith and fair dealing to
support a wrongful termination for convenience contract breach claim. Specifically, the
government contends that where the government is authorized to terminate a contract for
convenience a claim for breach based on the termination for convenience arises only
when the decision was made for the specific purpose of harming the plaintiff. The
government concedes that its motion thus turns on whether allegations of intent to harm
plaintiff by specific actions must be alleged to state a claim for breach of contract in
connection with a termination for convenience.
The plaintiff, in response, argues that allegations of specific intent to harm
plaintiff are not required. Rather, it claims that it has stated a breach claim based on
allegations of unreasonable behavior by the government under the implied duty of good
faith and fair dealing or in the alternative based on allegations that the government
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abused its discretion by terminating the contracts or never intended to honor its contract
with TigerSwan.
To begin, the court agrees with the government that TigerSwan may not rely on
the standards for breach of the implied duty of good faith and fair dealing as a basis for
making a claim related to an improper termination for convenience. See Scott Timber
Co. v. United States, 692 F.3d at 1375 quoted above. The court disagrees, however, with
the government’s contention that allegations of intent to harm or animus toward the
plaintiff are always required to establish a breach of contract claim based on an improper
termination for convenience.
The Federal Circuit has recognized several circumstances where the government,
in exercising its contractual right to terminate for convenience may be liable for breach of
contract. These circumstances certainly include situations in which the government has
acted with animus toward the contractor but the Circuit has also recognized a potential
breach claim where the government abused its discretion or never intended for the
contract to go forward. T & M Distribs., 185 F.3d at 1283; Krygoski, 94 F.3d at 1543-44.
In those later situations, allegations of animus toward the plaintiff are not necessarily
required. For example, the “abuse of discretion” standard has been satisfied when the
government has terminated a contract for convenience in order to get a better price for
itself. See e.g. Sigal Constr. Corp. v. General Services Admn., CBCA 508, 10-1 BCA ¶
34,442 (May 13, 2010) (citing Krygoski, 94 F.3d at 1541). Similarly, the Federal Circuit
has indicated that a breach may arise when the government enters a contract without
intending to allow the awardee to perform under the contract. Krygoski, 94 F.3d at 1543-
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45; Caldwell, 55 F.3d at 1582. While these examples involve some form of “bad faith, ”
the “bad faith” does not necessarily involve an intent to harm the contractor. Rather, the
government may be liable for breach in situations where it took action at the expense of
the plaintiff without necessarily acting with animus toward the plaintiff. The court reads
these precedents to include liability for a breach of contract based on an improper
termination for convenience where the government has engaged in some form of
improper self-dealing for its own benefit or to benefit another contractor.
Tested by these standards, TigerSwan has alleged sufficient facts to demonstrate a
potential breach of contract for improper termination for convenience based on the
government’s alleged “abuse of discretion” and failure to honor its contract with
TigerSwan. At the pleading stage, the court does not demand “the level of factual
specificity” required to prove the case on the merits. In re Bill of Lading, 681 F.3d at
1342. Instead, as noted above, the plaintiff must only plead enough facts to enable the
court “to draw the reasonable inference that the defendant is liable for the misconduct
alleged.” Id. (quoting Iqbal, 556 U.S. at 678). The court here is less concerned with the
complaint’s “precise language” and instead determines whether the “facts, when
considered in their entirety and in context, lead to the common sense conclusion” that the
DOD breached its contractual duties by terminating TigerSwan’s contracts. Id. at 1343.
Here, the facts, as alleged in the complaint, demonstrate that the DOD engaged in a
pattern of conduct to ensure that Aegis completed the contract notwithstanding the
awards to TigerSwan. The complaint alleges that prior to TigerSwan’s award of contract
6005, the DOD already had a sole-source contract to Aegis in the works. The June 19
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Aegis Bridge Contract J&A stated that Aegis “is the only contractor able to meet the
requirement on 25 Jun 2010, and be 100% ready to perform.” Pl.’s Ex. 8, June 19 Aegis
Bridge Contract J&A 1. The June 19 Aegis Bridge Contract J&A further stated, in
recognition of the ongoing 6005 contract solicitation and impending award, that “the
[bid] process will not be completed in time to begin service on 25 June 2010,” which was
apparently one day after TigerSwan won the 6005 contract work. Moreover, the
complaint alleges that while the DOD issued a notice to proceed to TigerSwan to begin
work, it immediately rescinded that notice seemingly without regard to TigerSwan’s
readiness to perform. The allegations state that the DOD—knowing that it required the
underlying 6005 contract work complete—opted to execute the July 5, 2010 stop work
order in connection to TigerSwan’s 6005 contract work rather than override the stay
issued in response to Aegis’s July 2, 2010 GAO bid protest. Thereafter, the DOD issued
a series of additional sole-source contracts to Aegis, culminating in the final sole-source
award to Aegis after Aegis lost its bid protest on the 6005 contract. Drawing all
reasonable inferences in favor of TigerSwan, the court finds that TigerSwan has set forth
a sufficient factual basis to state a plausible claim for breach of contract based on an
improper termination for convenience. Accordingly, the plaintiff must be given the
opportunity to present its case on the merits, Hall v. Bed Bath & Beyond, 705 F.3d 1357,
1364 (Fed. Cir. 2013) (“Whether the facts as plausibly pleaded can be proved is a matter
for trial.”). It is premature to dismiss the plaintiff’s breach of contract claim. The
government’s motion for judgment on the pleadings of plaintiff’s first claim is, therefore,
DENIED.
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D. TigerSwan fails to state a claim upon which relief can be granted in
connection with its bid protest claim.
In regard to TigerSwan’s bid protest claim, the government argues that TigerSwan
fails to state a claim upon which relief can be granted under 28 U.S.C. § 1491(b) because
TigerSwan cannot recover bid and proposal costs on contracts the government awarded to
TigerSwan and then subsequently terminated for convenience. The government argues
that to the extent the plaintiff’s bid protest claim is based on improper terminations for
convenience, it must be brought under this court’s contract dispute jurisdiction pursuant
to section 1491(a) because bid protest claims under section 1491(b) must be “in
connection with a procurement” and post-award terminations for convenience are not
made in connection with a procurement. In addition, the government argues, to the
extent that TigerSwan’s bid protest relies on the allegedly final sole-source award to
Aegis, the plaintiff cannot recover its bid preparation costs because none were incurred.
The court agrees with the government that TigerSwan fails to state a claim upon
which relief can be sought in connection to its bid protest claim. At its core, TigerSwan’s
bid protest claim—apparently made in connection with the cancellation of the 6001 and
6005 contracts—rests on two basic grounds: (1) the improper terminations for
convenience of the 6001 and 6005 contracts and (2) the arbitrary and capricious award of
the final sole-source contract to Aegis. Neither, taken alone or together, states a bid
protest claim for which relief can be granted.
The improprieties TigerSwan alleges with regard to the DOD’s management of the
6001 and 6005 contracts (i.e. the allegedly improper terminations for convenience), must,
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as discussed above, be brought as breach of contract claims under 28 U.S.C. § 1491(a)
rather than as part of a bid protest. 6 Dalton v. Sherwood Van Lines, Inc., 50 F.3d 1014,
1017 (Fed. Cir. 1995) (“When the Contract Disputes Act applies, it provides the
exclusive mechanism for dispute resolution. . . .”); see also Davis/HRGM Joint Venture
v. United States, 50 Fed. Cl. 539, 546 (2001) (holding that a challenge to a termination
for convenience does not fall within the CFC’s bid protest jurisdiction); Griffy’s
Landscape Maint. LLC v. United States, 51 Fed. Cl. 667, 671-73 (2001). The court
agrees with the government that these claims may only be brought pursuant to 28 U.S.C.
§ 1491(a).
To the extent that TigerSwan’s bid protest relies on alleged violations in
connection to the final Aegis sole-source contract, the claim must also fail since the
plaintiff neither seeks bid and proposal costs associated with that contract—as there were
none—nor injunctive relief since performance on that contract is complete. Accordingly
the government’s motion to dismiss TigerSwan’s bid protest claim is GRANTED.
6
Relatedly, TigerSwan lacks standing to protest the management of the 6001 and 6005 contracts
because it was the eventual awardee for both. See, e.g., Outdoor Venture Corp. v. United States,
100 Fed. Cl. 146, 152 (2011) (“Contract awardees . . . must instead bring contract claims
pursuant to the Contract Disputes Act. . . .”); Diversified Maint. Sys., Inc. v. United States, 103
Fed. Cl. 431, 436-37 (2012) (holding that a contract awardee lacks standing to bring a bid protest
in connection to its own contract unless the contract awardee challenges corrective action on the
same contract). Here, TigerSwan won the 6005 contract after the DOD took corrective action on
the 6001 contract and there was no corrective action in connection with the cancellation of the
6005 contract.
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III. CONCULSION
For the foregoing reasons, the government’s motion is GRANTED-IN-PART
and DENIED-IN-PART. The parties shall have until April 15, 2013 to file a joint status
report detailing next steps for resolving this litigation.
IT IS SO ORDERED.
s/Nancy B. Firestone
NANCY B. FIRESTONE
Judge
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