The government’s motion for summary judgment on a claim seeking compensatory consequential damages in relation to a termination for convenience is granted in part, where the appellant sought compensation for lost profits on future contracts, including the eventual recompete of the terminated contract, which the board found too remote and speculative. The board denied the government’s motion in relation to the portion of the claim related to the option year on the terminated contract. While the appellant could not compel the government to award the option year, the board noted it could attempt to demonstrate the termination was ordered in bad faith.
Nexagen Networks Inc. appealed the contracting officer’s denial of its certified claims seeking damages in relation to the termination for convenience of its contract with the Army. The Army moved for partial summary judgment on a portion of the claim in which Nexagen sought $37,597,526.94 in “compensatory consequential damages.”
On May 31, 2013, the Army awarded Nexagen a multiple award IDIQ contract to provide software and systems engineering services. On February 13, 2015, the Army awarded Nexagen a task order for Data Strategy Service and Software Support. The base year of the task order had a value of $22,961,266.98, while the option year had a value of $23,348,377.30.
Nexagen performed on the task order for less than three months, during which time the agency sent deficiency notices and a cure notice. On May 4, 2015, the CO informed Nexagen that he would terminate the task order for default. However, the CO changed the termination to a no-cost termination for convenience.
On December 22, 2015, Nexagen submitted a certified claim seeking $37,597,526.94 for “Compensatory Consequential Damages: Breach of implied covenant of good faith and fair dealing,” and $2,646,853 for “Compensatory Expectation Damages: Breach of contract based upon wrongful termination.”
Nexagen’s claim consisted of documents purportedly supporting the $2.6 million in expectation damages. However, nothing in the claim itemized the $37.6 million consequential damages claim. The claim did allege that the termination caused resulted in reputational harm, the potential for biased evaluations in future procurements, the loss of $35 million in revenue and technical expertise, the loss of good will, and lost overhead, G&A, and profit.
The CO denied most of the claim. With respect to the fixed fee Nexagen sought in the expectation damages claim, the CO denied it for the option year because “there is no entitlement to unexercised options.” For the base year fee of $908,547.22, she granted a prorated $151,424.54 to reflect Nexagen’s actual performance period, and denied the remainder. The CO denied the consequential damages claim in full, citing the lack of supporting information.
In response to the motion to dismiss, Nexagen submitted a spreadsheet that for the first time itemized its consequential damages claim. This exhibit clarified that the claim was based on lost profits, loss of corporate market value (calculated by multiplying by six the lost profits on the base and option years), along with general and administrative costs and overhead. The appellant sought its fixed fee not only for the base and option years but for three additional years for which it contends it would have been the awardee after a recompetition.
First, the board considered whether it had jurisdiction to consider the claim for compensatory consequential damages, given the paucity of information provided by the appellant. The board noted it had previously held that if a claim is so lacking in specificity that the CO could not decipher the claimant’s intent, it could not hold jurisdiction.
However, the board noted the Court of Federal Claims has held that a claim must provide the CO adequate notice of the basis and amount of the claim. The Federal Circuit has held that neither the Contract Disputes Act nor the FAR require a contractor to account for each cost component of a claim. According to the court, providing the CO adequate notice of the basis and amount does not require the contractor to submit a detailed breakdown of costs or financial documentation. In applying this standard, the board has characterized the amount of information required to provide adequate notice of the basis and amount of the claim as “quite low.”
In its supplemental brief, Nexagen implicitly acknowledged that it did not provide the CO all of the information contained in its exhibit, but stated that the CO should have been on notice that the claim reflected the loss of value, loss of goodwill, loss of profit, overhead and G&A resulting from the termination.
The board agreed that Nexagen submitted just barely enough information to pass the low jurisdictional bar. While the initial claim provided no supporting detail, the court found the CO would have been on notice that the $37 million claimed reflected the loss of value, loss of goodwill, loss of profit, overhead and G&A resulting from the termination, even if she had no idea how Nexagen calculated its alleged losses. Accordingly, the board held that it possessed jurisdiction to consider the claim, and therefore turned to whether Nexagen was entitled to recover the types of damages it sought.
Much of the consequential damages claim was based on the alleged lost profits after the convenience termination. The board noted that the CO has broad discretion to terminate for convenience, unless the contractor can show a clear abuse of discretion or that the government acted in bad faith, which would open the door to breach damages. If Nexagen met the high standard for showing bad faith, it could be entitled to lost profits on the base year of the contract.
However, the board explained that even if a contractor succeeds in showing bad faith, it is not entitled to consequential damages, such as lost profits on other contracts, because the award of future contracts is remote and speculative. While Nexagen asserted it would have had a strong chance of retaining the contract when it was recompeted, the board noted the contract at issue did not entitle Nexagen to future contracts nor assure that it would have made a profit on these speculative future contracts.
Accordingly, the board granted the government’s motion for summary judgment with respect to Nexagen’s claims for $11,011,592 in lost corporate value, $7,497,776 in lost business opportunities in predictive analytics and other fields, and $11,678,899 in lost profits, G&A and overhead on the successor contract.
The board did not address the portion of the claim seeking lost profits, G&A, and overhead on the unexercised option year. While the appellant could not compel the government to exercise an option, it does have the limited opportunity to prove bad faith or an abuse of discretion. Accordingly, the board declined to rule on this portion of the claim at this time.
Nexagen Networks Inc. is represented by David A. Rose of Rose Consulting LLC. The government is represented by Raymond M. Saunders, Army Chief Trial Attorney, and Major Stephen P. Smith, JA, Trial Attorney.
