Government’s motion to dismiss for lack of jurisdiction is denied. The government terminated a contract for default. The contractor appealed the termination. The parties entered settlement agreement under which the government agreed to convert the termination for default into a termination for convenience in exchange for the contractor dismissing the appeal. The government converted the termination, but the contractor refused to dismiss. The government moved to dismiss alleging that the conversion had mooted the appeal. The government argued that the appeal was from a decision to terminate for default that had been withdrawn, so there was no longer a decision over which the board could exercise jurisdiction. The board disagreed, finding that the conversion did not moot the appeal because it was not unequivocal; it allowed the government to reinstate the default termination under certain situations. Because the conversion had not completely eradicated the default decision, the board still had jurisdiction.
Satterfield & Pontikes Construction, Inc. (S&P) had a contract with the Navy to build a health clinic at the Naval Construction Battalion Center in Mississippi. The Navy terminated the contract for default on the grounds that S&P had failed to make progress with the diligence required to ensure timely completion.
S&P appealed the default termination to the ASBCA. While that appeal was pending, S&P and the government entered a settlement agreement. That agreement provided that the government would enter a takeover agreement with S&P’s sureties to complete performance. Once the work was completed, the government would rescind the termination for default decision and covert it to a termination for convenience. S&P would then dismiss the appeal. As part of the settlement agreement, the parties agreed to release each other from all claims. The settlement agreement, however, provided that the government had the right to restore the termination for default decision under certain conditions.
The government entered a takeover agreement with S&P’s sureties, who hired another contractor to complete the work. After the work was completed, the government converted the termination for default into a termination for convenience. The conversion decision noted that the government still had the right to reinstate the termination for default.
The government asked S&P to dismiss its appeal in accordance with the settlement agreement. But S&P refused, believing the government had breached the settlement agreement. Indeed, S8P submitted a second claim to the Navy seeking over $10 million in termination for convenience costs. In this second claim, S&P alleged that the government’s reservation of the right to reinstate the termination for default meant that the conversion into a termination for convenience was equivocal. As a result, S&P argued, the conversion was ineffectual. The government, S&P alleged, had breached the settlement agreement, and thus the company was now entitled to recover termination costs.
The government moved to dismiss the appeals for lack of subject matter jurisdiction. The government claimed that because it had converted the default termination into a termination for convenience as contemplated by the settlement agreement, there was no longer an operative default decision. Without a default decision there was no final decision before the board for review. S&P had received the relief it was entitled to, so its appeals were moot.
The board noted that it will find an appeal moot when a termination for default is withdrawn without equivocation. In this case, however, the government had failed to demonstrate that the withdrawal of the default termination was unequivocal. The conversion plainly stated that the government reserved the right to reinstate the default the termination under certain conditions. Moreover, the government had not provided any evidence, such as a statement by the contracting officer, that the final decision was unequivocal. Thus, contrary to the government’s claim, the conversion of the default termination had not mooted the appeal.
As part of its appeal, S&P alleged the government acted in bad faith in not honoring the settlement agreement. The board found that S&P had not satisfied the high burden of proving bad faith. Nevertheless, the board found that the company had adequately asserted a claim for breach of the duty of good faith and fair dealing, which carries a lesser evidentiary burden. The board found that there were triable issues concerning whether the government fulfilled its duty to cooperate with S&P.
The government alleged that many of S&P’s allegations relied on negotiations leading up to the settlement agreement and that reliance on these allegation were barred by the agreement entireties clause, which provided that the discussions prior to the agreement cannot alter the terms of the agreement. But the board found that the government had not shown the S&P allegations were within the purview of the entireties clause. The allegations concerned the government purported withholding of contract modifications. Those allegations were not precluded by the entireties clause.
Lastly, the government argued that a release in the settlement agreement precluded S&P’s appeals. But the board found there were disputed issues of fact concerning whether the government breached its duty of good faith and fair dealing. If the government had breached that duty, then the release would not be operative. Thus, the board found that it could not enforce the release at this point in the litigation.
S&P is represented by Douglas L. Patin and Amy E. Garber of Bradley Arant Boult Cummings LLP. The government is represented by Craig D. Jensen and Matthew D. Bordelon of the Navy.
