Even a dog knows the difference between being accidentally stepped on and intentionally kicked. Having your contract terminated by the government is similar. If it happens because circumstances have changed, it’s like being accidentally stepped on. You don’t like it, but you know it wasn’t intentionally done to harm you. But if your contract is terminated solely because the agency seeks a better price—that is an intentional kick to the gut. Does the law recognize the difference between these two scenarios? Read on.
Yes, it does. In Sigal Construction Co., CBCA No. 508, 10-1 BCA ¶ 34,442 (May 13, 2010), the Civilian Board of Contract Appeals held that a government agency may not terminate a contract for convenience simply to get a better price.
The Sigal case involved a contract for the build out and renovation of the Harry S. Truman Old State Building in Washington, DC. The solicitation provided that certain work would be performed on a lump-sum fixed-price basis while renovation, repair, and restoration of certain finishes would be paid for on a unit-price basis. For purposes of evaluating bids, the solicitation set out estimated quantities for the unit-priced work. In awarding the contract to Sigal, GSA found that Sigal’s lump-sum fixed price and unit prices were fair and reasonable.
The project required significantly more unit-priced work than the quantities listed in the solicitation. Rather than having Sigal perform the additional work at the stipulated unit prices, GSA suspended Sigal’s performance. Instead, the agency found another company willing to perform the work at lower rates.
Sigal brought a claim to recover the profits that it would have earned if it had performed all of the unit priced work actually needed. The agency denied the claim, contending that any work in excess of the amount estimated in the contract was extra-contractual and could be awarded to another contractor.
The Civilian Board of Contract Appeals disagreed. The Board found that the estimated quantities in the solicitation did not limit the amount of work Sigal was contractually entitled to perform. The Board found that by precluding Sigal from performing all of the additional work, the agency had constructively terminated for convenience that portion of the contract. But in this context, the termination amounted to a breach of contract:
One of the few limitations on the Government’s right to terminate for convenience is that the Government may not terminate simply to get a better price for performing needed work.
Thus, the Board held that the agency’s action constituted a breach of contract. Sigal was entitled to recover the profit it would have earned by performing the deleted work.
While government agencies generally have broad authority to deduct or eliminate work from a contract, this authority is not without limits. The Termination for Convenience clause does not permit the government to dishonor its contractual obligations with impunity. A termination for convenience for the purpose of acquiring a better bargain from another source is an abuse of discretion and breach of contract.