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Board Denies $8M Claim Under IDIQ Contract

Posted on June 21st, 2016 by

In the appeal of CAE USA, INC. v. DEPARTMENT OF HOMELAND SECURITY (May 26, 2016), the Board of Contract Appeals denied CAE’s claim in excess of $8M to build a flight simulator for the U.S. Coast Guard.  CAE entered into an IDIQ contract with the Government to provide training services to pilots of the HC-130H aircraft.  The Coast Guard uses this aircraft for long range surveillance.  CAE invested over $8M building a Full Flight Simulator for this training.  The Government provided the “avionics package” to be incorporated into the simulator.  CAE would then be paid for training courses provided to Coast Guard pilots.  During the proposal stage, the Government also indicated that CAE could use the simulator to provide training to third parties on a “not to interfere basis.”  This provided CAE a business opportunity to make money by providing training to private air cargo services and foreign militaries.  CAE argued that this induced it to  invest in the development of the Full Flight Simulator, which was very costly.

The Government decided to cancel the flight training program and did not order any further services off of the IDIQ contract with CAE.  To make matters worse, the Government asked CAE to provide the avionics package back.  This meant that CAE could no longer provide training to private air cargo companies and foreign military entities.  CAE would lose significant revenue as a result of this lost business opportunity.

CAE filed a claim against the Government based on breach of the duty of good faith and fair dealing.  CAE argued that the Government should have allowed it to continue to use the avionics package so it could recoup on its significant investment into the Full Flight Simulator.  The Board of Contract Appeals denied CAE’s claim.  The Board ruled that because the contract was on IDIQ type, the Government was only obligated to purchase the minimum quantities stated in the contract.

Given that the contract was and IDIQ type, the Board held that CAE could not complain when the Government decided it no longer need flight training services.  The duty of good faith and fair dealing did not change this fact.  The Board noted that this duty does not “expand party’s contractual duties beyond those in the express contract or create duties inconsistent with the contract’s provisions.”

The Board also held that the duty of good faith and fair dealing did not require the Government to allow CAE to keep the avionics package so it could train other pilots and recoup its investment into the flight simulator:

Would it have been nice of the Coast Guard to let CAE hold the A1U avionics for a longer period of time? Certainly. 2 But the good faith and fair dealing duty “is not limitless.” West Run Student Housing Associates, LLC v. Huntington National Bank, 712 F.3d 165, 170 (3d Cir. 2013). It does not entitle contractors to extra-contractual benefits, or require the Government to take extra-contractual steps, simply because such generosity would be nice, even if gratuitous. See Excel Services, Inc., ASBCA 30565, 85-3 BCA ¶ 18,369, at 92,159 (duty to cooperate “does not obligate the Government to assist a contractor” outside the requirements of the contract “by taking positive actions” that the contract does not require). If the Government is not contractually obligated to do certain things, it is not financially liable – under a breach of contract theory – for failing to do them.

When entering into the IDIQ contract, CAE could have inserted language that permitted it to keep the avionics package if the Government cancelled the flight training program.  This way, it could have recouped its investment even after the Government cancelled its flight training program.

This opinion includes a detailed discussion on the Government’s duty of good faith and fair dealing.  Although it did not help CAE here, this doctrine is still alive and well.

 

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