Claim of Bad Faith Termination by Government Requires Strong Evidence, says CBCA

An agency has broad discretion to terminate a contract for convenience. But sometimes, a contractor will challenge the termination for convenience by arguing that the agency acted in bad faith in terminating the contract.

A recent CBCA decision looks at what type of evidence is needed to establish bad faith. Not surprisingly, the CBCA confirms that the standard of proof is quite high.

In J.R. Mannes Gov’t Servs. Corp., CBCA 5911 (Mar. 29, 2018), the CBCA reviewed an appeal of J.R. Mannes Government Services Corporation, which claimed the FBI terminated a task order for convenience based on bad faith. J.R. Mannes argued the FBI wanted to “get itself a better deal by performing the work in-house” or to retaliate against J.R. Mannes for a previous appeal.

In 2015, the FBI awarded a task order to J.R. Mannes to work on a project to administer user access to applications hosted on the FBI’s mainframe computer. By March 2017, the FBI planned to retire the mainframe system, so it concluded that the J.R. Mannes task order supporting the mainframe should be discontinued. Therefore, the contracting officer modified the task order so the option year was not exercised.

On June 23, 2017, J.R. Mannes responded “that the modification ‘constitute[d] an improper termination for convenience’ because a bad faith termination would entitle it to its ‘anticipated profit.'” On July 21, 2017, J.R. Mannes filed a claim for $53,139 in lost profits.  The contracting officer did not issue a decision, and J.R. Mannes filed an appeal of the deemed denial.

The CBCA wrote that “[t]he Government can terminate a contract for convenience when it is in its best interests.” There is a “presumption that government officials act in good faith” and the appellant must submit evidence to rebut that presumption.

The FBI said that it chose to terminate because “it no longer needed a contractor to support a mainframe computer system that the FBI planned to retire in 2018. Also, the FBI chose to eliminate this contract, as well as others, due to funding constraints.”

J.R. Mannes argued that the termination was in bad faith because of a claim it submitted on another contract. It submitted a letter of a former J.R. Mannes employee that stated the employee had talked to an FBI contracting officer representative and “[m]y initial and enduring reaction to her question and comment is that the contract which I was performing was being targeted for termination because of legal actions J.R. Mannes initiated on an unrelated FBI contract.”

In response, the FBI submitted sworn declarations that the FBI did not know about J.R. Mannes’ claim on the unrelated contract until months after the alleged conversation with the FBI COR that was discussed in the employee letter. The CBCA said that the FBI’s declarations were “more persuasive and believable” than J.R. Mannes’ evidence, and denied the appeal.

As the J.R. Mannes case demonstrates, in order to have a viable claim bad faith termination by the government, a contractor must present strong evidence that the government acted in bad faith. An unsworn letter of the type J.R. Mannes submitted probably won’t cut it.

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