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CBCA Provides Guidance on the Meaning of the Implied "Good Faith" Requirement in Government Contracts

    Client Alerts
  • August 15, 2016

Implied in every government contract is a requirement of “good faith and fair dealing” regardless of whether the written terms state such a requirement.  Therefore, contractors should be careful to avoid conduct that the written terms of the contract may not address but that would violate the implied good faith obligation.  The problem for contractors is the amorphous term “good faith” creates uncertainty as to what conduct violates the good faith obligation.  The Civilian Board of Contract Appeals provided helpful guidance in its recent decision in CAE USA, Inc. v. Department of Homeland Security.

There a contractor claimed the government breached the implied duty of good faith, and the Board found it necessary to first define the duty of good faith before it could apply it to the contractor’s claim.  The Board noted that the duty of good faith “encompasses numerous concepts” and cannot be reduced to a single definition.

Due to the inability to provide a precise definition of what the good faith duty encompasses, the Board resorted to defining the duty by stating what it does not include.  The Board tied the good faith duty to the written terms of the contract by holding that the duty does not give a party greater rights than those specified in the terms.

Rather, the Board indicated that a party breaches the good faith duty when its action or failure to act undermines the contractual bargain the parties agreed to and thereby affects the parties’ reasonable expectations.  As examples of conduct found to violate the duty of good faith, the Board pointed to where a party engaged in conduct designed to appropriate the benefits the other party was to receive from the contract, where a party engaged in conduct that hindered the other party’s ability to perform under the contract, where a party failed to take actions required for the other party to be able to perform under the contract, and where a party failed to cooperate with the other party’s efforts to perform.

The bottom line for government contractors is that merely ensuring that your conduct does not violate a written term in the contract is not enough.  Government contractors also must remain cognizant of whether their conduct undermines the overarching purpose of the contract.