Can’t Stop, Won’t Stop: Government Liable for Intransigently Continuing to Use Contractor-Provided Software After Contract Expired; Force 3, LLC v. Department of Health and Human Services, CBCA 6654

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Contractor’s motion for summary judgment on its claim is granted. The contractor provided software to the government. The government willfully continued to use the software after the contract expired. The government denied liability, arguing that the contractor was responsible from removing the software from the agency’s system. The board rejected this argument, finding that by continuing to use the software, the government had ratified a commitment to use the contractor’s services. The contractor was entitled to payment as if the government had affirmatively committed to use the contractor’s services.

The Department of Health and Human Services (HHS) awarded a delivery order to Force 3, LLC under a government-wide acquisition contract. The order was to support appliances HHS had purchased from a cybersecurity company, FireEye. The appliances protected the agency’s data system from cyber-attacks.

The delivery order had a one-year base period and two one-year options. Force 3 purchased a three-year subscription to the FireEye services for the delivery order. The order provided that after non-renewal or termination of the contract, HHS would certify that it had deleted or disabled all copies of the FireEye software.

Force 3 provided the FireEye services for the base year and one option year. HHS declined to exercise the second option year. But a few months after the contract ended, FireEye notified Force 3 that HHS was still using the software. Indeed, HHS had failed to certify that it had deleted or disabled the software. Because Force 3 had purchased a three-year subscription from FireEye, it could not stop HHS from updating and using the software, and it could not stop FireEye from providing services.

HHS continued to use the FireEye software for nine months after the delivery order ended. Force 3 submitted a claim to HHS seeking the 1.1 million, the cost of the one year subscription to FireEye services. HHS denied the claim, arguing that it was Force 3’s duty, not the agency’s, to disable and the delete the software services. Force 3 appealed to the CBCA, alleging claims for breach of contract, constructive exercise of the option, and breach of the implied duty of good faith and fair dealing.

HHS moved to dismiss the breach of contract claim, arguing that a contractor cannot recover incurred costs that it assumed it would recover if the government had exercised an option. The board noted that there are cases that hold a contractor cannot recover costs incurred under the expectation that the government will exercise an option. But the board found those cases inapposite. In those case, unlike here, the government did not continue to use services after the contract expired. The board denied the government’s motion to dismiss.

Aside from the motion to dismiss, Force 3 and HHS cross-moved for summary judgment. In its motion, Force 3 argued that the government constructively exercised the second option period by continuing to use the FireEye support services.

But the board reasoned that the government cannot exercise an option by doing something other than strictly complying with the terms of the contract. Here, HHS did not even attempt to exercise the option, much less exercise the option ineffectively. What’s more, HHS did not direct Force 3 to perform additional work, which undercut the construction exercise theory.

Rather, the board found that HHS had simply ratified its commitment to use the Force 3 support services. The acceptance of benefits with the actual or implied knowledge of the contracting officer will result in ratification by inaction entitling the contractor to recover. In this case, the contracting officer knew that HHS was using support services and took no action for nine months after the contract expired. HHS benefitted from the support services  it received at no cost, hiding behind its seemingly discretionary decision to not exercise the remaining option. This contracting officer’s continued failure to curtail use of the services resulted in a ratification.

HHS argued that the contracting officer did not ratify the commitment because the services were provided without her authorization and against her explicit discretion. The board was not convinced. By failing to take any action to stop the use of the services or to disable or delete the software updates, the contracting officer implicitly adopted HHS’s continued use of the services.

HHS contended that the contract required Force 3, not the agency to disable the services. Wrong, said the board. The contract specifically required HHS to discontinue its use of the services and delete all the files.

HHS alleged that it was impossible for the agency to stop using the software because Force 3 had purchased a three-year subscription. The board found that there was no evidence that it was objectively impossible for HHS to delete or disable the software. Indeed, the agency did not even ask FireEye to stop provided updates until months after the contract expired.

Having found that HHS ratified its commitment to use Force 3’ services, the board found that Force 3 was entitled to the same compensation it have received if the act had been previously authorized. Because FireEye only sold its services in year increments, Force 3 was entitled to the $1.1 million annual subscription fee.

Force 3 is represented by Joseph J. Petrillo and Karen D. Powell of Smith Pachter McWhorter PLC. The government is represented by Terrius Greene of the Department of Health and Human Services.

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