Board Finds VA Termination for Convenience Was Not Done In Bad Faith
In UNIVERSAL HOME HEALTH AND INDUSTRIAL SUPPLIES, INC., CBCA 5083 (May 17, 2016), the Civilian Board of Contract Appeals denied a contractor’s claim that the VA's termination for convenience was done in bad faith. The VA initially terminated the contract for default because the contractor failed to provide heart monitoring services vital to two VA hospitals. The VA then converted this to a termination for convenience after determining that the contract was not at fault.
The contractor subsequently claimed that the termination for convenience was done in bad faith and requested anticipatory lost profits. The Board noted that the contractor bears a heavy burden in proving bad faith or abuse of discretion:
A termination for convenience will only be a breach of contract if “the tribunal finds that the termination was motivated by bad faith or constituted an abuse of discretion, or that the Government entered into the contract with no intention of fulfilling its promises.” Greenlee Construction, Inc. v. General Services Administration, CBCA 415 et al., 07-2 BCA ¶ 33,619, at 166,510. “In the absence of bad faith or clear abuse of discretion, the contracting officer’s election to terminate for the government’s convenience is conclusive.” T&M Distributors, Inc. v. United States, 185 F.3d 1279, 1283 (Fed. Cir. 1999).
“To prove bad faith, appellant must provide facts to show by clear and convincing evidence that [government] officials had something akin to a ‘specific intent to injure’ appellant, engaged in a ‘proven conspiracy to get rid of’ appellant, or were ‘motivated alone by malice’ against appellant.” V.I.C. Enterprises, Inc. v. Department of Veterans Affairs, CBCA 1598, 09-2 BCA ¶ 34,284, at 169,363-64 (quoting Am-Pro Protective Agency, Inc. v. United States, 281 F.3d 1234, 1240 (Fed. Cir. 2002)). “The mere fact that a contracting officer awards a contract to another company after terminating the plaintiff’s contract is insufficient to show bad faith.” Kalvar, 543 F.2d at 1302. Similarly, the contracting officer’s incorrect interpretation of the contract requirements or mistaken determination regarding the contract specifications is not sufficient to establish bad faith. Id. at 1302-03.
Against these standards, the Board did not find bad faith or abuse of discretion, the Board determined that the VA took reasonable action to avoid a possible disruption of vital heart monitoring services at the two VA hospitals. The Contracting Officer was faced with a dispute between the contractor and its supplier, MedNet, who was no longer willing to provide the monitoring services and equipment. In response to the cure notice, the contractor blamed its supplier. This did not provide the VA adequate assurance that monitoring services would continue. The VA therefore terminated the contract for default. Under these circumstances, the Board found that there was no evidence that the VA had acted in bad faith.
This case demonstrates the high burden of proof in bad faith or abuse of discretion cases.
ASBCA Tosses Contractor Claim as Untimely
In the Appeal of Bushra Company, ASBCA No. 59918 (April 22, 2016) , the Armed Services Board of Contract Appeals (“ASBCA”) dismissed a Contract Disputes Act appeal because it was filed more than 90 days after receipt of the Government’s termination for default. The termination for default failed to include the appeal clause required by FAR 33.211(a)(3)(v). This clause would have clearly informed the contractor of its right to appeal at the ASBCA within 90 days or Court of Federal Claims within one year. This is what we would normally expect the Government to do. This likely caused the contractor not to appeal on time.
The contractor failed to prove harm, however. Specifically, the ASBCA held that "the contractor did not prove that termination for default’s failure to more precisely set forth the contractor’s appeal rights caused it actual prejudice." In other words, the contractor did not alleged that it was misled by the Government’s failure to inform it of its right to appeal as required by the Federal Acquisition Regulations.
It is worth noting that the contractor represented itself pro se and likely lacked the sophistication to argue prejudice. The lesson learned is that whenever you get a written letter or determination by the Government, which refers to the disputes procedures in the Federal Acquisition Regulations, treat it as a final decision and appeal it in a timely fashion. When in doubt, you can always ask the Government to clarify that a determination is, in fact, an appealable final decision.
