The prime contractor went bankrupt. The prime owed its sub over $3 million. The sub sued the government for unpaid funds. The COFC denied the claim. The sub did not have an implied contract the government. Additionally, the sub was not a third-party beneficiary of an agreement between the prime and the government.
Fox Logistics & Construction Company v. United States, COFC No. 18-1395C
- Problems Paying Subcontractors – The government contracted with Lakeshore to build an Air Force base in Afghanistan. Lakeshore hired a subcontractor, Fox, to perform most of the work. Lakeshore, however, had cash flow problems and could not pay Fox.
- Payment Arrangement – The government notified Lakeshore that it was breaching its obligation to pay subcontractors. To rectify this, the government agreed to a new payment arrangement with Lakeshore. Under the arrangement, the government would make payments to a special account opened by Lakeshore. Lakeshore would then use that account to pay subcontractors. The government would have the right to review the account.
- Bankruptcy – This arrangement worked for a few months. But Lakeshore ended up declaring bankruptcy and abandoning the project. When it filed for bankruptcy, Lakeshore owed Fox over $3 million. Fox filed suit in the COFC seeking the $3million from the government.’
- Implied in Fact Contract – Fox argued it had implied in fact contract with the government to ensure it received payments. The court rejected the argument. There was no evidence the parties ever had a meeting of the minds for an implied in fact contract. Indeed, while Lakeshore was having problems paying subcontractors, Fox had proposed the government take actions to ensure payment. The government rejected all of Fox’s proposals, indicating there was no meeting of the minds. The government spoke with Fox about the payment arrangement, but it only ever dealt with Lakeshore.
- Third Party Beneficiary – Fox also alleged it was a third-party beneficiary of the Lakeshore payment arrangement. The court didn’t agree. Yhe payment arrangement was not a change to the government’s contract with Lakeshore. Rather, the payment arrangement was an exercise of the contracting officer’s existing authority under the contract to enforce Lakeshore’s obligations. Thus, the government had not modified the contract to benefit Fox. What’s more, the government never agreed to pay Fox directly. Indeed, the government rejected Fox’s demands of direct payment. There was never any change that gave Fox some control over the funds in the special account, which would have indicated an intent to make a Fox a beneficiary.
Fox is represented by Hal A. Emalfarb of Emalfarb Law. The government is represented by Michael D. Snyder, Brian M. Boynton, Patricia M. McCarthy, Stephen J. Gillingham, and Rhonda Sumpter of the Department of Justice.
Case summary by Craig LaChance, Editor in Chief
