"Precision Pine"

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Now for some good news in government contracts law. On February 11, 2014, a three-judge panel of the Federal Circuit reversed the Court of Federal Claims decisions in Metcalf Constr. Co. v. United States, 102 Fed. Cl. 334 (2011) (Metcalf I) and Metcalf Constr. Co. v. United States, 107 Fed. Cl. 786 (2012) (Metcalf II). The case has been remanded for further proceedings and application of the correct legal standards. A copy of the Federal Circuit’s decision is available here.

No requirement for proof of specific targeting

The main issue on appeal in Metcalf was the legal standard applicable to contractor claims that the government breached its duty of good faith and fair dealing. The Court of Federal Claims concluded that the decision in Precision Pine & Timber, Inc. v. United States, 596 F.3d 817, 829 (Fed. Cir. 2010) requires proof of specific targeting—that Government actions were “specifically designed to reappropriate the benefits” of a contract. Incompetence and failure to cooperate are not enough.

The Federal Circuit rejects this analysis. “The trial court misread Precision Pine, which does not impose a specific-targeting requirement applicable across the board or in this case.”

The Federal Circuit’s opinion in Metcalf also rejects the Government’s attempt to limit the scope of the duty of good faith and fair dealing. Citing Precision Pine, the Government argued that the duty of good faith and fair dealing “cannot expand a party’s contractual duties beyond those in the express contract or create duties inconsistent with the contract’s provisions.” In its appellate brief, the Government urged a broad application of that language that would almost always preclude a good faith and fair dealing claim. Citing its interpretation, the Government argued that Metcalf’s claim must fail because it could not “identify a contract provision that the Navy’s inspection process violated.”

That argument went nowhere with the Federal Circuit. According to the court’s decision, the Government’s interpretation “goes too far:  a breach of the implied duty of good faith and fair dealing does not require a violation of an express provision of the contract.”

Metcalf Construction Company and the Navy argued their positions today in the appeal of Metcalf’s $27-million claim on its contract to design and build military housing in Kaneohe Bay, Hawaii. The appeal focuses on the December 9, 2011 decision by Judge Susan G. Braden of the United States Court of Federal Claims, which addresses the liability issues presented by Metcalf’s claim. See Metcalf Constr. Co. v. United States, 102 Fed. Cl. 334 (2011) (Metcalf I). A second decision issued on December 10, 2012 addresses the damages issues presented in the case. Metcalf Constr. Co. v. United States, 107 Fed. Cl. 786 (2012) (Metcalf II). Regardless of how the Federal Circuit resolves the appeal, the case is bad for federal construction contracting.

Duty of good faith and fair dealing

In Metcalf I, the court found that Metcalf could not establish its claim that the Navy breached its duty of good faith and fair dealing. This conclusion is based entirely on the Court’s interpretation of the applicable standard for proving such a claim. In Judge Braden’s view, “a breach of the duty of good faith and fair dealing claim against the Government can only be established by a showing that [the Government] ‘specifically designed to reappropriate the benefits [that] the other party expected to obtain from the transaction, thereby abrogating the government’s obligations under the contract.’” Metcalf I § C.1.b (quoting Precision Pine & Timber, Inc. v. United States, 596 F.3d 817, 829 (Fed. Cir. 2010)).