When a government contractor is terminated for reasons other than default, the response from the contractor is often to evaluate the contracting officer’s decision and rationale for the termination and determine if an appeal is warranted. Government contractors sometimes appeal a contracting officer’s decision to terminate their contract by alleging bad faith and an abuse of discretion. While the contractor may legitimately believe that the contracting officer acted in bad faith or abused their discretion, proving its allegations and convincing the Court of Federal Claims or a Board of Contract Appeals to reverse the contracting officer’s decision is no simple task. Even a contracting officer who terminated a contract based on a mistaken understanding of the facts and circumstances may not constitute bad faith or an abuse of discretion.
Recently the Postal Service Board of Contract Appeals (“PSBCA”) had the opportunity to address this situation in the consolidated appeals of Cook Mail Carriers, Inc. v. United States Postal Service and Patricia J. Sasnett v. United States Postal Service. PSBCA No. 6583, 6584 (March 24, 2017). In these appeals two government contractors – Cook Mail Carriers, Inc (“Cook”) and Patricia J. Sasnett (“Sasnett”) – who provide mail transportation services in Alabama for the US Postal Service were terminated due to revisions in the mail routes directed at simplifying the transportation network, pooling resources, managing workloads, and gaining contract administration efficiencies. The contracting officer invoked the Postal Service’s “Termination with Notice” clause in order to terminate these contracts, a clause that allows either party to terminate the contract, without cost, provided proper notice (60 days) is given.
When the contracting officer decided to terminate the Cook and Sasnett contracts he believed that the need for revised routes was due to a mail processing plant in Gadsden, Alabama being closed and merged into a larger facility in Birmingham, Alabama. However, after the termination, the contracting officer learned that the Gadsden facility had previously been closed and the reason for the revised routes was due to mail transportation hubs (as opposed to processing plants) being relocated to Fort Payne and Boaz, Alabama.
Cook and Sasnett appealed the contracting officer’s decision arguing, among other points, that the contracting officer’s decision to terminate the contracts on 60 days’ notice (as permitted by the Termination with Notice provisions of the respective contracts) was made in bad faith or constituted an abuse of his discretion.
While the contracting officer terminated the contracts under the Termination with Notice clause, which does not include any express limitation to its use, the contracting officer’s exercise of the clause is not truly unlimited. A decision to exercise that clause can breach the contract if it was made in bad faith or as an abuse of discretion.
In order for Cook and Sasnett to prove bad faith they needed show by clear and convincing evidence that the Postal Service acted with specific intent to injure them. Additionally, to find an abuse of discretion, the PSBCA looks at the evidence for bad faith, and also whether the contracting officer had a reasonable contract-based reason for this decision, the amount of discretion available to him, and whether an applicable statute or regulation was violated.
After looking at the evidence present, the PSBCA found that the contracting officer did not act in bad faith when terminating the contracts because, even though he was mistaken about the specific operational changes upon which he based his decision, he would have taken the same termination and consolidation actions if he had known about the true network changes. The PSBCA concluded that the contracting officer acted in what he believed to be the Postal Service’s best interests, and did not specifically attempt to injure Cook or Sasnett. The PSBCA also found that the contracting officer did not abuse his discretion in terminating the contracts, stating that “we do not have a situation in which the contracting officer mindlessly and without the exercise of judgment terminated the contracts….” The PSBCA determined that even though the contracting officer was mistaken about the facts underlying the termination, his examination of the facts, as he believed them to be, was sufficient to satisfy the contracting officer’s obligation to become acquainted with the facts and to apply his own judgment toward his decision.
While the PSBCA’s ruling concerns a non-default termination issued under the Postal Service’s Termination with Notice clause, this case has relevance to all government contracts allowing a termination for reasons other than default. While the Termination with Notice clause differs from the Termination for Convenience clause found in many government contracts, both types of termination clauses are similar in the sense that the termination will be upheld unless it is shown that the contracting officer’s decision was made in bad faith or constituted an abuse of discretion. Government contractors should take note of the PSBCA’s decision because it reinforces the deference given to a contracting officer’s decision to terminate for convenience and the difficulty in proving bad faith or an abuse of discretion. Even a contracting officer’s mistaken belief about the facts and circumstances justifying the termination may not be enough to find bad faith or an abuse of discretion, so long as the contracting officer believes he is acting in the best interest of the government and sufficiently makes himself acquainted with the facts prior to making his decision, even if those facts are ultimately incorrect.