Court of Federal Claims Rules Contracting Officer’s Failure to Exercise Independent Business Judgment Renders Partial Termination for Convenience an Abuse of Discretion and Breach, but Holds Subsequent Termination for Cause of Remainder of Contract to Be Appropriate

Securiforce Int’l America, LLC v. United States, 125 Fed. Cl. 749 (March 21, 2016)

Plaintiff Securiforce International America, LLC (“Securiforce”) was awarded a contract by the Defense Logistics Agency Energy (“DLA Energy” or the “agency”) to deliver diesel fuel and gasoline to eight Department of State sites in Iraq.  But, within three months of the award, the agency partially terminated the contract for the convenience of the government.  The remainder of the contract was terminated for cause shortly thereafter.

As a result of its termination, Securiforce submitted claims to DLA Energy’s contracting officer, seeking, among other things, a declaration from the contracting officer that the termination for convenience was invalid and constituted a breach of contract.  The contracting officer denied the claims.

Thereafter, Securiforce filed an action in the United States Court of Federal Claims (1) seeking declaratory relief that its termination was wrongful and (2) alleging that the agency materially breached the contract and was therefore not entitled to terminate Securiforce for cause.  After trial, the court held that DLA Energy breached the contract when it partially terminated Securiforce for convenience, but that it had a valid basis to terminate the remainder of the contract for cause.

With respect to termination for convenience, the court recited that, while a contracting officer is entitled to “considerable latitude” in terminating a contract, its discretion is not unlimited.  Rather, an agency breaches a contract where the contracting officer terminates in bad faith or where the contracting officer abuses his or her discretion.

Here, the record reflected that before Securiforce was awarded the contract, DLA Energy began to question whether or not it could, consistent with Trade Agreements Act of 1979 (the “TAA”)[1], accept fuel from Securiforce for certain Department of States sites because Securiforce intended to source its fuel from Kuwait.  After executing the contract, DLA Energy believed it might be able to secure a waiver of the TAA to allow Securiforce to supply fuel to all sites.  But, shortly thereafter, it determined that terminating the contract for convenience with respect to those Department of States was more advantageous to the government than securing such a waiver because time was of the essence and the waiver process was lengthy.  On this point, the court held that the termination for convenience was not in bad faith because the agency was motivated by urgency to ensure fuel orders were fulfilled, rather than by “ill will” or an “intent to injure” Securiforce.

Despite the lack of bad faith, the court went on to hold that the termination for convenience constituted a breach of contract because the contracting officer abused her discretion.  In particular, the contracting officer admitted at trial that she did not exercise her independent judgment in deciding to terminate for convenience.  Rather, despite the fact that a valid basis existed for the agency to terminate for convenience, the contracting officer simply accepted her supervisor’s decision to terminate “without exercising her own independent business judgment or putting her mind to the problem and independently reaching a decision[.]”  Put differently, the contracting officer “abdicated her duty” to exercise independent business judgment, on which basis “the law clearly removes any deference” it would have otherwise granted her decision.  Thus, the court held that DLA Energy breached the contract by terminating portions of Securiforce’s contract for convenience.

With respect to its subsequent termination for cause, Securiforce similarly  argued that the contracting officer’s decision amounted to a breach of contract.  First, Securiforce argued that “because the termination for convenience was improper, the subsequent termination for cause should be rendered improper.”  The court rejected this argument, holding that, while the partial termination for convenience was improper, it did not prevent Securiforce from performing the remainder of its contract, and thus did not preclude the agency from terminating that portion for cause.

With respect to its performance, Securiforce argued that it could not be liable for cause because its performance was hindered or delayed by the agency in a number of ways, which constituted a prior breach and thus precluded the agency from terminating for cause.  The court rejected this argument and held that the government properly terminated the contract.

First, Securiforce argued that the agency’s wrongful termination for convenience materially changed Securiforce’s arrangements with its subcontractors, which thus hindered its ability to agree to terms on its subcontracts, and ultimately prevented Securiforce from timely delivering fuel.  Moreover, Securiforce argued that the agency failed to provide it with necessary security forces and access cards necessary to make deliveries, and otherwise failed to do its part to allow Securiforce to perform.  The court rejected these arguments, however, finding that Securiforce failed to prove that its difficulties in finalizing its arrangements with subcontractors were caused by the termination for convenience.  Moreover, it was Securiforce’s own failure to finalize these arrangements, rather than government’s alleged hindrances, that rendered Securiforce unable to timely make deliveries under the contract.  Thus, the record reflected that Securiforce breached the contract by failing to timely deliver fuel, and because that failure was not caused by the agency.  Consequently, the court held that the agency had a valid basis to terminate the contract for cause, and thus did not breach the contract.

To view the full text of the court’s decision, courtesy of Lexis ®, click here.

Kristopher Berr

[1] The TAA restricts the countries from which the United States may acquire certain goods in acquisitions exceeding a certain dollar threshold.

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