I’ve Acquired a Government Contractor and Assumed a Lousy Contract. Can I Get a Reformation?

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When you buy a government contractor and assume its contracts, not all of those deals are going to be winners. Here, after acquiring a contractor, the claimant stepped in to perform a government contract. The claimant believed the contractor had underbid, so it asked the government to revise prices. The government said it would “work with” the claimant. The claimant ended up seeking reformation of the contract, arguing the government had misrepresented its intent to “work with” the plaintiff. The ASBCA found no misrepresentation. Additionally, the board reasoned, a reformation is only appropriate to reflect the parties’ actual understanding. In light of the vague “work with” statement, the parties’ understanding was unclear.

Appeal of Cooper/Ports America, LLC, ASBCA No. 61349

Background

The government entered a contract with Shippers Stevedoring for stevedoring services. Another company Cooper/Ports American (C/PA) acquired Shippers and the stevedoring contract.

C/PA, however, was not happy with the Shippers contract. If felt Shippers had underbid, and C/PA was now losing money on the contract. Indeed, before it had acquired Shippers, C/PA had spoken to the contracting officer about the Shippers contract. The contracting officer had told C/PA that the government would “work with” the company on prices. 

Now that it owned the contact, C/PA tried to work with the government. It asked the government to revise the contract, but the government declined. C/PA then filed a claim seeking reformation of the contract. The government denied the claim. C/PA appealed to the ASBCA, contending that it was entitled to reformation of the contract because the government had intentionally misrepresented that it would “work with” C/PA on contract prices.

Legal Analysis

Reformation is an equitable remedy by which the court rewrites a document to conform to the parties’ real intention. Here, the board found that C/PA was not entitled to reformation.

First, the board did not believe the government had made a misrepresentation. Even if the government had stated it would “work with “ C/PA, that statement was too vague to constitute a binding promise. Moreover, to obtain a reformation, C/PA had to show that the government had agreed to change the prices, not just that it would “work with” or discuss a change in prices. Indeed, the contracting officer had told C/PA there was no guarantee that prices could be revised.

Second, reformation was impossible. This was a fixed-price contract. The government cannot revise the prices on a fixed-price contract because it would be unfair to other bidders.

Third, even assuming there was a misrepresentation, C/PA was still not entitled to a reformation because it had not shown what the parties’ real intentions were. The point of reformation is to fix a contract so it reflects what the parties actually agreed to. Given that the government cannot revise prices on a fixed price contract, the board could not say that the government had ever intended to revise the prices.

C/PA is represented by W. Barron A. Avery and Brian V. Johnsoln of Baker & Hostetler. The government is represented by Jeffrey P. Hildebrant, Caryl A. Potter, Lawrence M. Anderson, and Danielle A. Runyan.

ASBCA - Cooper Ports America