Courts often look at a party’s conduct for help in interpreting ambiguous contract terms. But this concept has broader application. Actions and positions that one side takes before a dispute arises may actually override a clear contract requirement. The Civilian Board of Contract Appeals’ recent decision in TKC Aerospace, Inc. v. Department of Homeland Security, CBCA No. 2119 (Jan. 31, 2012) [pdf] illustrates the point. The Board’s opinion identifies the contractor’s response to a problem during performance as the key factor in resolving the case.
TKC Aerospace leased a twin-engine passenger jet to the Coast Guard. The contractor’s primary obligation was to ensure 95 percent “operational availability.” The Coast Guard was required to conduct certain “routine” maintenance, but the contractor was responsible for “periodic” maintenance.
During a periodic maintenance inspection five years into the contract, the manufacturer discovered corrosion in the aircraft structure. The contractor immediately directed the manufacturer to repair the corrosion. The contractor then returned the aircraft to service but did not make a claim for the costs of repairing the corrosion.
The Coast Guard concluded that operational availability was less than 95 percent while the aircraft was out for repairs and deducted $631,414 from the contractor’s invoices. TKC Aerospace objected to the government’s position and submitted a claim demanding payment of the invoices and $135,547 for the costs of the corrosion repair. The contractor appealed to the CBCA after the contracting officer denied the claim.
Although the Board’s decision addressed the lack of evidence supporting the contractor’s argument that the Coast Guard caused the corrosion, the key factor in the case was the contractor’s initial response. In the Board’s view, the contractor “immediately assumed that repairing the corrosion was its responsibility.” The contractor did not send a corrosion repair bill to the Coast Guard or give prompt notice of its position as to the availability of the aircraft while the corrosion was being repaired. Given this conduct, the Board concluded that the contractor was not entitled to recover the corrosion repair costs or to recover the government withholdings.
Although the result in this particular decision may be justified on the facts, the Board’s findings on this point are troubling from a business and policy perspective. Government contracts law should promote good results for contractors who put the work first, rather than pushing them aside in favor of contractors who excel at the red tape.