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Published on August 1, 2022 • Law

This Is Why You Should Never Assume the Government Will Exercise Option Periods

The contractor claimed it was entitled to the costs of software licenses that it had purchased for the government for the option period of a contract. The contractor argued cost of the licenses was recoverable as a termination when the government terminated for convenience shortly after exercising the option. The CBCA denied the claim, and the Federal Circuit affirmed. The contractor had purchased the licenses for the option periods before performing the base period. The contractor had not shown that it had performed under the option or used the licenses during the few hours that the option period was extant. Thus, the cost of the licenses could not be recovered as a termination cost.

Microtechnologies LLC, dba MicroTech v. United States Attorney General, Fed. Cir. 2021-2169

Background

Microtechnologies had a contract with the Department of Justice to provide software licenses. The contract had one base year and two option years. On the first day of performance, MicoTech purchased software licenses for the base year and both option years.

When the base period ended, DOJ told MicroTech that it was going to exercise the first option. The next day, however, DOJ told MicroTech that it didn't want to exercise the option, and it terminated the contract for convenience.

MicroTech filed an appeal with the CBCA seeking to recover the cost of license for the option year as a termination cost. The board denied the appeal, finding that MicroTech had purchased licenses with no assurance that the government would exercise the option years. MicroTech had never performed during the few hours the option was operative, so the company was not entitled to termination costs.

MicoTech appealed the Federal Circuit.

Holding

The Federal Circuit affirmed the board. The cost of the license for the option year was not a reasonable change that resulted from the termination. MicroTech had purchased the license early, but there was nothing in the contract that required MicroTech to incur that cost before the option period was exercised.

MicroTech is represented by Zachary David Prince and Joseph J. Petrillo of Smith Pachter McWhorter. The government is represented by Bryan Michael Byrd, Brian M. Boynton, and Patricia M. McCarthy of the Department of Justice.

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