Contractor Said Performance Was More Expensive than Expected. Why Did the Federal Circuit Find that Performance Was Not Impractical?

The contractor alleged the government had changed and/or rendered performance impossible when it required the contractor to manufacture key components to an item the contractor was providing. The Federal Circuit held that the government had not changed the contract. Change requires an order from the government. Here, the government never ordered the contractor to manufacture the parts; rather, the contractor itself offered to make them. The court also found that manufacturing the parts had not made performance impractical. The contractor had not been forced to make the parts—it could have purchased the parts from another source.

U.S Aeroteam Inc. v. United States, Fed. Cir. 2021-2272

Background

The Air Force awarded a contract to Aeroteam USA for the production of ground support trailers. Two years into performance, Aeroteam began to experience problems obtaining key trailer components—running-gear assemblies—from its supplier. The supplier was experiencing financial difficulties and raised the price of the running gears.

In light of the higher price, Aeroteam decided to manufacture the running gears itself. Aeroteam asked the Air Force if it could assume responsibility for manufacturing the running gears. The Air Force approved the request and awarded Aeroteam a second contract for the running gears.

But Aeroteam soon discovered that its costs for manufacturing the running gears were higher than expected. Aeroteam sought an equitable adjustment for the increased costs. The Air Force denied the request. 

Aeroteam filed suit with the Court of Federal Claims, alleging claims for constructive change, cardinal change, and commercial impracticability. The COFC, however, found in favor of the government, reasoning that the Air Force had not changed the contract, and performance was not impractical. Aeroteam appealed to the Federal Circuit

Holding

Constructive Change

Aeroteam argued that it had not agreed to start manufacturing the running gears. Rather, Aeroteam contended, the Air Force had essentially ordered the company to make the gears and thus constructively changed the contract.

To prove a constructive change, a claimant must establish that the government ordered the claimant to perform work beyond the contract requirements. Here, however, the government did not order the extra work. Rather, Aeroteam itself proposed to manufacture the running gears. Aeroteam argued that the Air Force nonetheless had to approve the manufacturing request. But the court reasoned that mere approval of a request is insufficient to prove a constructive change. Instead, the government must order change. There was no actual order from the government.

Cardinal Change

Aeroteam also argued that its agreement to start manufacturing the running gears was such a profound change of its responsibilities that it amounted to a cardinal change. Again, however, the court found that a change, even a cardinal change, requires an order from the government. In this case Aeroteam, not the government, proposed the change.,

Commercial Impracticability

Aeroteam contended that manufacturing the running gears made performance of the contract a commercial impracticability. To prove commercial impracticability, a claimant must show that due to unforeseen events, the contract could only be performed at an excessive or unreasonable cost. Here, the court did not find that the contract could only be performed at an unreasonable cost. Aeroteam could have continued to purchase running gears from its original supplier instead of manufacturing the gears itself. While this would have been more expensive, it was not impractical.

Aeroteam is represented by Milton C. Johns of Executive Law Partners, PLLC. The government is represented by Igor Helman, Brian M. Boynton, Lisa Lefante Donahue, and Patricia M. McCarthy of the Department of Justice.