July 19, 2006
This article originally appeared in the July 12, 2006 (Vol. 48, No. 25) edition of The Government Contractor, © 2006 Thomson/West, and is here reprinted with their permission.
If a court presumes good faith by the Government in administering a public contract, the same presumption of good faith should apply to actions by the contractor, according to recommendations adopted July 7 by the Acquisition Advisory Panel. The recommendations, based on comments from the Public Contract Law Section of the American Bar Association, call for legislation creating a uniform evidentiary standard for Government and contractor personnel.
Two recent decisions by the U.S. Court of Federal Claims highlight the problem, according to Stuart Nibley, a partner at Thelen and Priest LLP. Addressing the panel on behalf of the Section, Nibley noted that the COFC, in L.P. Consulting Group v. U.S., 66 Fed. Cl. 238 (2005), and Systems Fuels Inc. v. U.S., 66 Fed. Cl. 722 (2005), applied a presumption of good faith to Government employees acting in their contractual capacity. Under long-standing Supreme Court precedent, Government officials acting in a sovereign capacity enjoy a presumption that they perform their duties with regularity and in good faith. See Ross v. Reed, 14 U.S. 482 (1816). This presumption traditionally recedes, however, when the Government enters the contractual arena. See U.S. v. Winstar, 518 U.S. 839 (1996).
By putting the Government on more equal terms with contractors, Nibley noted, courts preserve the Government's credibility at the bargaining table. Judicial decisions that apply a presumption favoring Government employees, on the other hand, turn the Government into an "untrustworthy partner," Nibley said.
According to the Section's comments, much of the confusion in this area stems from decisions that conflate:
The two principles, the Section noted, "involve distinct legal concepts." To impose a duty of good faith on the Government and also presume that the duty is achieved, Nibley said, sends a mixed message to contractors and Government employees.
The recommendations adopted by the panel state,
Legislation should be enacted providing that contractors and the Government shall enjoy the same legal presumptions, regarding good faith and regularity, in discharging their duties and in exercising their rights in connection with the performance of any government procurement contract, and either party's attempt to rebut any such presumption that applies to the other party's conduct shall be subject to a uniform evidentiary standard that applies equally to both parties.
In addition, the recommendations provide that the same rules for contract interpretation, performance and liability apply equally to contractors and the Government "unless otherwise required by the [U.S.] Constitution or the public interest."
The approved language will appear as part of the full Panel report, which will be submitted to the Office of Federal Procurement Policy and Congress. According to Marcia Madsen, the Panel's chair and a partner at Mayer, Brown, Rowe and Maw LLP, the proposal is relatively narrow, but "clarifies that when the Government contracts with private parties, both should be judged by the same standard of good faith if there is a dispute."
Interest Awards for Government Contractors
At the July 7 meeting, the Section also submitted comments on the recovery of interest by Government contractors on claims and disputes. According to the Section, while the Government has the right to recover interest against almost all debtors, certain Government contracts carry no-interest recovery rights, representing a "fundamental inequity."
Decisions in the Winstar line of cases, for example, exclude interest from damages as a matter of law. Interest is also unrecoverable in spent nuclear fuel decisions and in Government sales contracts in which the contractor becomes the purchaser. In addition, contractors have been denied interest, the Section said, in Government contracts involving purchase of real property, alleged breaches of insurance contracts under the National Flood Insurance Program and cooperative research and development agreements. The Section recommended extending the interest provisions of the Contract Disputes Act, 41 USCA § 601, to all Government contracts.
The Section further advocated amending the CDA to allow stand-alone or "interest only" type claims, and adjusting the CDA interest rate to one that more equitably compensates contractors. According to the Section, its recommendations would incorporate "more economic truth" and "more commercial practices" into the CDA interest provisions.
The Panel was authorized by § 1423 of the Services Acquisition Reform Act of 2003 to review and recommend changes to acquisition laws and regulations. Throughout July, the Panel will meet to address topics including commercial practices, the acquisition workforce and the appropriate role of contractors in the federal workplace.
For more information, visit the Panel's Web site at:
http://acquisition.gov/comp/aap/index.html.
Or, contact the author:
Stuart B. Nibley
202.508.4334
snibley@thelenreid.com
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