Government Damages Contractor’s Equipment, Board Awards Costs

When a contractor leases equipment to the government, the contractor typically expects that the government will take good care of that equipment.  But a recent Armed Services Board of Contracts Appeals case reveals the government does not always take such proper care of leased goods or equipment.

What happens then? Well, the contractor may be able to recover damages under the contract and common law principles.

In Assessment and Training Solutions Consulting Corporation, ASBCA No. 61047 (2017), the ASBCA sustained a contractor’s claim for damages resulting from the government’s negligence in taking care of boats leased from the contractor.

By way of background, ATSCC leased three of its boats to the Navy for use in maritime training. Under the contract maintenance requirements, ATSCC was responsible for performing quarterly preventative maintenance and inspection on all three boats and repairing any identified issues. The contractor was to “bear the cost of performing repairs unless it can be proven that such repairs were due to negligence or willful damages caused by the government.”

During the Navy’s operation of these boats, multiple issues arose, including a boat grounding, a boat accident, using the wrong oil, filling freshwater tanks with diesel fuel, operating when engines were overheated, failing to fill out pre-operation and post-operation checklists, leaking coolant and oil, and a cracked manifold in an engine, each issue requiring repair.

On December 15, 2015, ATSCC submitted a claim to the Navy contracting officer for damages due to “the negligence of U.S. Government (USG) personnel,” but took responsibility for some of the repairs. When the Navy failed to issue a final decision for over a year, ATSCC appealed the deemed denial to the Board.

The Board rejected the Navy’s argument that because the contract specifically addressed negligence, common law bailment principles were inapplicable. Instead, the Board agreed with ATSCC’s common law bailment theory because both the contract and common law bailment had the same criteria for liability – negligence. Thus, the principles of common law bailment were founded upon the underlying contract and applicable to the Board’s evaluation.

For those unfamiliar with the principals of common law bailment, a brief explanation is warranted. Under common law bailment, when one party, the bailee, pays another party, the bailor, to use the bailor’s goods, the bailment is for the mutual benefit of the parties (i.e., the bailor receives money and the bailee receives full use of the goods). As the Board wrote:

The law of bailment imposes upon the bailee the duty to protect the property by exercising ordinary care and to return the property in substantially the same condition, ordinary wear and tear excepted. When the government receives the property in good condition and returns it in a damaged condition, a presumption arises ‘that the cause of the damage to the property was the [g]overment’s failure to exercise ordinary care or its negligence.

Applying this standard, the Board disagreed with the Navy’s argument that it took ordinary care of ATSCC’s boats, noting that one boat’s “‘blown’ engine is not ‘ordinary wear and tear.’” The Board found that the Navy’s acceptance of the boats established they were in good condition when received. The Board rejected that Navy’s argument that the boats were not in its exclusive control, finding that the damage occurred during the Navy’s operating and training in which ATSCC did not participate. Thus, the Navy’s return of damaged boats established that the Navy was responsible for at least some of the damage.

As demonstrated in Assessment Training, ordinary wear and tear is expected in leasing items to the government. However, Assessment Training confirms that the government cannot absolve itself of liability for its own negligence in taking care of leased goods or equipment, especially when it fails to exercise ordinary care.