Let the Government Contract:

The Sovereign has the Right, and Good Reason,to Shed its Sovereignty when it Contracts

Stuart B. Nibley & Jade Totman*

* FILL IN BIOS.

Table of Contents

I. The Problem: The Understandable but Misguided Judicial Instinct to Over-Protect the Sovereign when it Acts in its Contracting Capacity..............................................................................................4

II. Conflation and Considerable Confusion in the Application of the Three Distinct Legal Principles in the Context of Deciding Government Contracts Disputes: The Presumption of Good Faith; the Duty of Good Faith and Fair Dealing; and the Sovereign Acts Doctrine....................................................................................17

A........The Evolution of the Core Tenet in the Decisions of the Supreme Court: The Sovereign has the Right to Contract and Shed its Sovereignty to Pursue Commerce in the Marketplace.............................................................................18

B........An Overview of the Principles that Govern the Rights and Obligations the Government Enjoys in its Sovereign Capacity Compared with Those it Enjoys in its Contracting Capacity...............................................................32

1........Principle 1: The Presumption of Good Faith........35

2........Principle 2: The Duty of Good Faith and Fair Dealing............................................................................................36

3........Principle 3: The Sovereign Acts Doctrine ..........38

C........Some Decisions of the Federal Circuit and Tribunals Below Have Created Confusion.....................................................42

1........Principle 1 is Separate and Distinct from Principle 2..................................................................................43

2........Recent Federal Circuit Decisions in This Area of Law Have Been Inconsistent and Confusing, Effectively Importing the Concept of Subjective Bad Faith From Principle 1 (The Presumption of Good Faith) Into Application of Principles 2 (Duty of Good Faith and Fair Dealing) and 3 (Sovereign Acts Doctrine)................................................48

a........Am-Pro Protective Agency, Inc. v. United States..................................................................................48

b........Centex Corp. v. United States...........................52

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c........Precision Pine & Timber Co. v. United States..................................................................................55

III. The Ill Effects that Follow Over Protecting the Government and Conflating the Three Principles........................................................68

A........Some Decisions Issued after the Federal Circuit’s Decision in Precision Pine Have Conflated and Confused the Three Principles, Applying Precision Pine’s Legal Analysis to Situations Where only Government Contractual Acts, not Sovereign Acts, were Involved.........................................................................................68

B........Other Decisions have Employed a More Careful Analysis in an Attempt To Partially undo Some of the Melting of the Three Principles that has Followed the Federal Circuit’s Decisions in Am-Pro and Precision Pine.......................................................................................79

IV. Conclusion: The Practical Effects of Conflating The Three Principles....................................................................................................................84

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I. The Problem: The Understandable but Misguided Judicial Instinct to Over-Protect the Sovereign when it Acts in its Contracting Capacity

Originally, this Article intended to cover a number of

topics and decisional patterns in which some decisions issued by

the United States Court of Appeals for the Federal Circuit

(Federal Circuit) have had the effect of over-protecting the

Federal Government in its contractual relationships, to the

detriment of all constituents to the procurement process. Thus,

decisions that this Article might have discussed include those

concerning the application of mutual obligations to file claims

under the Contract Disputes Act;1 the disproportionate

application of massive forfeitures and penalties to contractors

in situations in which they, like the Government, were victims;2 1 Contract Disputes Act of 1978, Pub. L. No. 95-563, 92 Stat. 2383 (codified as amended at 41 U.S.C. §§ 7101-7109 (Supp. IV 2010)); see, e.g., M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323, 1328-29 (Fed. Cir. 2010) (finding that the court lacked jurisdiction over the contractor’s defense that the Government caused delays, because the contractor failed to submit a valid claim); Parsons Global Servs., Inc. v. McHugh, 677 F.3d 1166, 1170-72 (Fed. Cir. 2012) (finding that the court lacked jurisdiction over the contractor’s claim because its request was not non-routine).2 See, e.g., Long Island Sav. Bank, FSB v. United States, 503 F.3d 1234 (Fed. Cir. 2007). Chairman and Chief Executive Officer of Long Island Savings Bank (LISB), James J. Conway, Jr., funneled the bank’s business to his law firm, thereby receiving illegal kickbacks. See id. at 1239. The United States Court of Appeals for the Federal Circuit (Federal Circuit) found that Conway breached his fiduciary duty to LISB. Id. at 1247. Nonetheless, the court imputed Conway’s fraudulent behavior on LISB. See id. at 1249. The court held that LISB’s contract with the Government was void ab initio as a result of the fraud. Id. at 1251.

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and a series of decisions from Am-Pro Protective Agency, Inc. v.

United States3 through Precision Pine & Timber, Inc. v. United

States4 that addressed the Government’s rights and

responsibilities when it acts in its contracting capacity rather

than in its sovereign capacity. These decisions appear to apply

the law incorrectly.5

However, the aforementioned assertions are not intended to

ascribe improper motives to the judges who issued the decisions.

Instead, the theme that seems to underlie these decisions is

recognition that the sovereign is, after all, the sovereign,6

3 281 F.3d 1234 (Fed. Cir. 2001).4 596 F.3d 817 (Fed. Cir. 2010). 5 See, e.g., Steven L. Schooner & Pamela J. Kovacs, Affirmatively Inefficient Jurisprudence?: Confusing Contractors’ Rights to Raise Affirmative Defenses With Sovereign Immunity, 21 FED. CIR. B.J. 685, 686 (2012) (criticizing the Federal Circuit’s Maropakis decision for not being “well-grounded in relevant precedent” and “ignor[ing] the realities of the congressionally mandated contract disputes process”); Ralph C. Nash, Jr., Postscript: Breach of the Duty of Good Faith and Fair Dealing, 24 NASH & CIBINIC REP. ¶ 22, at 67-68 (May 2010) [hereinafter Nash, Postscript] (criticizing the Federal Circuit’s Precision Pine decision as failing to rest on “sound reasoning” because the court applied a concept unique to savings and loans cases to a timber sales case). 6 See ACQUISITION ADVISORY PANEL, REPORT OF THE ACQUISITION ADVISORY PANEL TO THE OFFICE OF FEDERAL PROCUREMENT POLICY AND THE UNITED STATES CONGRESS 84 (2007).

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that the sovereign must be accorded sovereign rights,7 and that

it is the judiciary’s charge to protect these sovereign rights.8

Ultimately we settled on one topic, the last of the three we

mention above: those Federal Circuit decisions that address the

Government’s rights and responsibilities when it acts in its

contracting capacity, rather than in its sovereign capacity.

This topic has importance and relevance not only in the judicial

world but also in the practical world of government contracting.9

Of course, the path to this discussion is well-worn; it is not

the path less taken.10 Tons of expert commentary, case law, and

academic work product lend considerable guidance, and some

misguidance, to this topic. 11 On the one hand, it seems folly to

7 See id. at 110 (recognizing that the Government is entitled to special rights when it acts in its sovereign capacity, but noting that the judiciary has also applied these special rights when the Government acts in a contracting capacity). 8 See W. Stanfield Johnson, The Federal Circuit’s Great Dissenter and Her “National Policy of Fairness to Contractors,” 40 PUB. CONT. L.J. 275 (2011) [hereinafter Johnson, The Federal Circuit’s Great Dissenter].9 See infra discussion Part IV. 10 See ROBERT FROST, The Road Not Taken, in MOUNTAIN INTERVAL 9, 9 (1920).11 See, e.g., Tecom, Inc. v. United States, 66 Fed. Cl. 736, 757-69 (2005) (discussing the evolution of presumption of good faith); Johnson, The Federal Circuit’s Great Dissenter, supra note Error: Reference source not found, at 276 (summarizing 22 dissents written by Judge Newman to demonstrate how “the Federal Circuit has inappropriately moved the balance of its government contract jurisprudence toward protecting the sovereign”); W. Stanfield Johnson, Mixed Nuts and Other Humdrum Disputes: Holding the Government Accountable Under the Law of Contracts Between Private Individuals, 32 PUB. CONT. L.J. 677, 678-79 (2003) [hereinafter Johnson, Mixed Nuts and Other Humdrum Disputes] (examining recent cases to show how the courts tend to use

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tread where other experts have led the discussion. But on the

other hand, the topic is one that builds upon prior analysis

that, unfortunately, twists and turns upon itself, raising

spectors and mischiefs that were once thought put to rest.

Consequently then, discussing prior analyses on the subject of

distinguishing the Government’s contracting capacity from its

sovereign capacity is not only warranted, but inevitable.12

Recent jurisprudence on the Government’s contracting power

in comparison to its sovereign power has revealed a Core Tenet

and three interwoven but distinct Principles which flow from the

Core Tenet.13 The Core Tenet has served as the foundation for

decisions of the United States Supreme Court,14 the Federal

Circuit,15 and tribunals below16 when deciding disputes between

the Government and its contractors. The Core Tenet has often

special rules to protect the Government, rather than treat it as a private contracting party).12 Mark Twain’s musing about the challenges of original thought and advancing upon the well-conceived thoughts of others is particularly salient here: “What a good thing Adam had — when he said a good thing he knew nobody had said it before.” ALBERT BIGELOW PAINE, MARK TWAIN’S NOTEBOOK 67 (1935).13 This Article employs shorthand phrases – Core Tenet and three underlying Principles – to reference four, related concepts consistently discussed by courts. 14 See, e.g., Lynch v. United States, 292 U.S. 571, 579 (1934). 15 See, e.g., M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323, 1345 (Fed. Cir. 2010).16 See, e.g., Metcalf Constr. Co. v. United States, 102 Fed. Cl. 334, 346 (2011). Please note, the authors refer to the United States Court of Federal Claims and its predecessor, the United States Claims Court, as well as the Boards of Contract Appeals, as “the tribunals below.”

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been expressed in a quotation by Justice Brandeis: “When the

United States enters into contract relations, its rights and

duties therein are governed generally by the law applicable to

contracts between private individuals.”17

Further judicial analysis of the Core Tenet has produced

three other distinct but related Principles: Principle 1 — the

presumption of good faith;18 Principle 2 — the duty of good faith

and fair dealing;19 and Principle 3 — the sovereign acts

doctrine.20 When assessing the applicability of each Principle

to a particular set of facts, it is important to remember that

each is unique.21 Principle 1 (the presumption of good faith) is

17 Lynch, 292 U.S. at 579.18 See, e.g., Tecom, Inc. v. United States, 66 Fed. Cl. 736, 757-69 (2005).19 See, e.g., Centex Corp. v. United States, 395 F.3d 1283, 1304 (Fed. Cir. 2005) (explaining that the “covenant of good faith and fair dealing . . . applies to the [G]overnment just as it does to private parties”) (citations omitted).20 See, e.g., United States v. Winstar Corp., 518 U.S. 838, 891 (1996) (discussing when the sovereign acts doctrine can be used to protect the Government from liability for breaching a contract). Many decisions have addressed the separate but related unmistakability doctrine in tandem with the sovereign acts doctrine. See, e.g., Winstar, 518 U.S. at 871-72; Timber Prods. Co. v. United States, 103 Fed. Cl. 225, 243 (2011). However, most recent decisions issued by the Federal Circuit and tribunals below forego discussion of the unmistakability doctrine and address its effects by discussing the applicability of the sovereign acts doctrine in a particular situation, and this Article follows that trend. See, e.g, Precision Pine, Inc. v. United States, 596 F.3d 817, 819 (Fed. Cir. 2010); Firemen’s Fund Ins. Co. v. United States, 92 Fed. Cl. 598 (2010); Am. Gen. Trading & Contracting, WLL, ASBCA No. 56758, 12-1 BCA ¶ 34,905, at 171,636. 21 See discussion infra Part II.B.

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an evidentiary standard that provides that a plaintiff, alleging

that the Government is liable for damages due to the acts or

omissions of government employees acting in their sovereign

capacity, must prove by clear and convincing evidence that the

government employees acted with subjective bad intent, bad faith,

or animus towards the plaintiff.22 In other words, government

employees who are acting in their sovereign capacities are

presumed to act in good faith.23 Principle 1 applies exclusively

to the Government’s exercise of its sovereign power, such that it

does not apply in the Government’s exercise of its contractual

power.24

Principle 2 (the duty of good faith and fair dealing) is a

principle of contract law that is implied into every contract,

including every government contract.25 Principle 2 provides

22 See Am-Pro Protective Agency, Inc. v. United States, 281 F.3d 1234, 1239-40 (Fed. Cir. 2002) (explaining that clear and convincing evidence of specific intent is required to overcome the presumption that government officials act in good faith); see also Tecom, 66 Fed. Cl. at 757-69 (tracing the evolution of presumption of good faith).23 See Am-Pro Protective Agency, Inc., 281 F.3d at 1236.24 Stuart B. Nibley, Unraveling the Mixed Messages that Government Procurement Personnel Receive: Message 1: Act Absolutely in the Government’s “Best Interests”; Message 2: Act “Ethically,” 36 PUB. CONT. L.J. 23, 25 (2006). A limited exception to this rule applies when a contractor specifically alleges that government employees acting in their contractual capacity acted in bad faith, with intent to harm the contractor, or with animus. See White Buffalo Constr., Inc. v. United States, 101 Fed. Cl. 1, 13 (2011). 25 See Centex Corp. v. United States, 395 F.3d 1283, 1304 (Fed. Cir. 2005) (explaining that the “covenant of good faith and fair dealing . . . applies to the [G]overnment just as it does to

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that each party to a contract owes the other the duty to

cooperate, not to hinder the other party’s performance, and to

take all actions necessary to permit the other party to enjoy the

benefit of its bargain.26 Principle 2 applies only in the

contractual arena and not when the Government acts in its

sovereign capacity.27 Principle 2 reflects mutuality, which is

fundamental to bilateral contracts.28 The Principle arises in

the context of a government contracts dispute when a contractor

alleges that the Government has breached the duty of good faith

and fair dealing by failing to cooperate or by hindering the

contractor’s performance.29 To prevail, a contractor must prove

by a preponderance of the evidence that the Government breached

private parties”) (citations omitted); RESTATEMENT (SECOND) OF CONTRACTS § 205 (1981). 26 See Precision Pine & Timber, Inc. v. United States, 596 F.3d 817, 820 n.1 (Fed. Cir. 2010) (“Both the duty not to hinder and the duty to cooperate are aspects of the implied duty of good faith and fair dealing.”) (citing RESTATEMENT (SECOND) OF CONTRACTS, § 205 (1981)); Centex Corp., 395 F.3d at 1304 (“The covenant [of good faith and fair dealing] imposes obligations on both contracting parties that include the duty not to interfere with the other party’s performance and not to act so as to destroy the reasonable expectations of the other party regarding the fruits of the contract.”).27 See Centex Corp., 395 F.3d at 1304 (noting that the covenant is applied to the parties of a contract). 28 Centerville Builders, Inc. v. Wynne, 683 A.2d 1340, 1341 (R.I. 1996) (“It is a fundamental principle of contract law that a bilateral contract requires mutuality of obligation.”). 29 See, e.g., Precision Pine, 596 F.3d at 819, 820 n.1 (noting that the contractor had alleged a breach of the duty of good faith and fair dealing based on the Government’s multiple suspensions of the contract).

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the duty of good faith and fair dealing.30 Principle 1 (the

presumption of good faith) is irrelevant to the applicability of

Principle 2 because applying Principle 2 does not involve

assessment of subjective intent, bad faith, or animus on the part

of government employees.31 Rather, applying Principle 2 requires

assessing objective criteria by determining whether the

Government’s alleged acts and omissions had deprived the

contractor of a benefit it reasonably anticipated it would have

received when it executed the contract.32

Principle 3 (the sovereign acts doctrine) applies when an

action the Government takes or fails to take in its sovereign

capacity has the effect of depriving a government contractor of a

benefit the contractor reasonably expected when it contracted

with the Government.33 Principle 3, therefore, assesses

sovereign actions that have eaffect in the contractual arena.34

Stated very generally, case law has provided that, when the

30 Linda P. Armstrong et al., Federal Procurement Ethical Requirements and the Good Faith Presumption, 20 NASH & CIBINIC REP. ¶ 29, at 94 (June 2006).31 See Armstrong et al., supra note Error: Reference source not found. As previously noted, the exception is when a contractor specifically alleges that government employees acted with intent to harm the contractor, and that this bad faith itself breached the contractual duty of good faith and fair dealing. See discussion supra note Error: Reference source not found.32 See Centex Corp., 395 F.3d at 1304. 33 See United States v. Winstar Corp., 518 U.S. 839, 891 (1996).34 See id. (citing Horowitz v. United States, 267 U.S. 458, 461 1925)). Liability for SovereEV. 633 , 651-6742 (April 1996) (tracing the development of the sovereign acts doctrine vernmdence from Deming’s Caough Wn.

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government Government acts in its sovereign capacity, in a

“public and general” manner, it is shielded from liability for

damages arising from contractor allegations that the sovereign

act breached the government’s its alleged breach of its duty of

good faith and fair dealing under a government contract.35

Conversely, if the government Government acts in its sovereign

capacity with primary intent to erase contract obligations

already existing, the sovereign acts doctrine will not relieve

the government ofrom liability to a contractor who claims breach

of the duty of good faith and fair dealing by reason of the

sovereign act. unately s eJustice Souter, writing for the

Supreme Court in Winstar, recognized that a particular sovereign

will not relieve the Government from liability.36 Unfortunately,

as recognized by Justice Souter recognized in United States v.

Wins37governmentaln act can have both “public and general”

effects, at least prospectively and intent as to itssofar as

prospective application, and yet still have intadverse effects

with and intent as to its retrospective application.38

35 Id. W 518 U..36 See id. at 896 (“[S]ome line has to must be drawn . . . between regulatory legislation that is relatively free of Government self-interest and . . . statutes tainted by a governmental object of self-relief . . . in which the Government seeks to shift . . costs.”).37 518 U.S. 839 (1996). 38 See Winstar, 518 U.S. at 893-94. Justice Souter rejected the Government’s argument that “the dual characters of Government as contractor and legislator are never ‘“fusd’” . . so long as the object of the statute is regulatory and meant to

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Even though, as discussed above, the three Principles are

best understood as distinct and subsidiary to the Core Tenet,The

Principles described above were applied for many years before and

after Winstar with recognition of their distinct, but related,

characters. However, the Federal Circuit’s decisions in Am-Pro

Protective Agency, Inc. v. United States Protective Agency, Inc.

v. United States,39 and Precision Pine & TimberIn., Inc. v.

United States40 now have placed the three Principles into a

“judicial fondue pot” that melts the concepts of each Principle

and merges them into a single standard.41 This new, single

standard created by these recent Federal Circuit decisions relies

exclusively and erroneously on an analysis of subjective intent

on the part of government employees, on concepts of “specifically

targeted” conduct, bad faith ,and animus on the part of

government employeesanalysis, even whenre the government t acts

under consideration are taken solely in the contractual arena.42

accomplish some public good.” Id. at 893. He then pointed to the legislationa at isue, FIRREA ample of when the dual natures of Government become “fused.” Id. at 894. In other words, FIRREA “protected the Government in its capacity analogous to a private insurer” (Government acting as contractor retrospectively), while also “advanc[ing] a broader public interest” (Government acting as sovereign prospectively). See id. Justice Souter then noted that he expct[ed] that such fusion” become “common in the modern regulatory state.” Id.39. [Having trouble locating support for thitat39 m281 F.3d 1234 (Fed. Cir. 2002).40 r596 F.3d 817 (Fed. Cir. 2010).41 See discussion infra Part II.C. 42 See discussion infra Part II.C.

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It is far from clear that the drafters of theCourt i Precision

Pinember, Inc. decision may not intended this to the rules

governing the Governs contractual acts with those govern

actsresult.,43 However, the imprecise language and analysis in

that decision have led to this result.44 ConsequentlyAs a result

of decisions like Precision Pine, A a number of judges have

imported the subjective intent analysis applicable only under

Principle 1 into their analysis of Principles 2 and 3.45

The effect is of conflating the rules governing the

Government’s contractual acts with those governing its sovereign

acts is not only to create law and guidance that is highly

confusing, but also to erode substantially the Core Tenet, both

as a legal principle and as a beacon to guide government

employees acting in the contractual arena as they administer

contracts and its impact on the actions of government

employees.46 By eroding the Core Tenet in the government

43 Precision Pine intended to do. See infra (discussing Timber Prods. Co. v. United States, No. 01-267C, 2011 WL 6934815 (Fed. Cl. Dec. 29, 2011); Fireman’s Fund Ins. Co. v. United States, 92 Fed. Cl. 598 (2010).44 See discussion infra Part III.A. ., White Buffalo Const., Inc. v. United States, 101 Fed. Cl. 1 (2011); Metcalf Const. Co. v. United States, No. 07-0777C, 2011 WL 6145128 (Fed. Cl. Dec. 9, 2011); D’Andrea Bros. LLC v. United States, 96 Fed. Cl. 205 (2010).45 See discussion infra Part III.A. , White B46 See discussion infra Part IV. , W. S: A Government Ethics Co. ¶ 47 , 153-154 (2005) (arguing that subjective bad faith approach undermines cCore tTenet, that Government must be treateds and that Federal Circuitalso over

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contracting arena, judicial decisions undermine the government’s

Government’s credibility at the bargaining table, as; an air of

distrust develops whenas contractors and government contract

administrative personnel realize that the acts and omissions of

government personnel cannot subject the government Government to

liability under the bilateral obligations otherwise implied into

every contract — the government will not be held to the same

standards that apply to all other contracting parties.47

The Federal Circuit needs to issue a cleaner articulation of

how the three Principles work together and alone, where they

overlap, and where they do not, and how alone and together they

support the Core Tenet. The Federal Circuit is ultimately the

forum responsible for ensuring that fairness and neutrality guide

the government’s Government’s contracting activities, including

resolution of disputes.48 The government ochartered the United 47 Seei(GomentStates v. Winstar Corp., 518 U.S. 839, 884 (1996) (noting that over-protection will “undermin[es[e] the Government’s credibility at the bargaining table and increasincrease[es]e the cost of its engagements”);ussion infra PartV. . discussion at III.B infra. As we state there, our analysis here does not involve consideration of ethics (although ethical considerations of course apply). Our analysis states a fundamental premise of business and contracts administration. Parties to a contract begin their analysis of what they must do under a contract with reference to what is required of them to enable them to enjoy the benefit of the contractual bargain and to avoid liability for failure to perform. 48 See 2 WILSON COWEN ET AL., The UNITED STATES COURT OF CLAIMS: A HISTORY 1 (1978) (noting that the Court of Claims “provid[ed] a means of efficiently and fairly handling the large number of claims that were being filed against the Government”). The Ggovernment chartered the United States Cout of Claims — the Federal Circuit’s predecessor — in 1855, as a forum to adjudicate claims

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States Court of Claims — the Federal Circuit’s predecessor — in

1855, as a forum to adjudicate claims brought against the United

States by Mexican-American War veterans.49 allSix years later,

for the sake of fairness, Abraham Lincoln petitioned Congress to

increase the Court of Claims’ jurisdiction and powers.50 in order

to ensure And, concerned by the Court of Claims’ inability to

render final judgments against the government, President Lincoln

reminded Congress in 1861, as follows:It is important that some

more convenient means should be provided, if possible, for the

adjustment of claims against the government, especially in view

of their increased number by reason of war. It is as much the

duty of the gG]Government to render prompt justice against itself

in favor of its citizens as it is to administer the same between

private individuals.”51 . . . It was intended by the organization

brought against the United States by Mexican-American War veterans. Id. at 11-15. 49 2 Wilson Cowen et al., The UNITED STATES Id. Congress established the Mexican War Claims Commission to rule on claims filed against the Government after the war. Id. at 11. Congress eventually grew dissatisfied with the Commission and, in 1855, voted to establish a permanent mechanism for adjudicating claims against the Government, the Court of Claims. Id. at 12-15. COURT OF CLAIMS: A HISTORY (1978).50 President Lincoln was concerned by the Court of Claims’ inability to render final judgments against the government.See President Abraham See A.braham Lincoln, First Annual Message (Dec. 3, 1861) (emphasis aded), available at p:/w.pncy.ucb.edu/ws/index.php?pid=29502. President Lincoln contended that “[i]t is important that some more convenient means should be provided, if possible, for the adjustment of claims against the [G]overnment, especially in view of their increased number by reason of war.” Id. 51 Id. President Lincoln went on to state that:

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of the Court of Claims mainly to remove [the investigation and

adjudication of claims against the government] from the halls of

Congress; but while the court has proved to be an effective and

valuable means of investigation, it in great degree fails to

effect the object of its creation for want of power to make its

judgments final.Fully aware of the delicacy, not to say the

danger, of the subject, I commend to your careful consideration

whether this power of making judgments final may not properly be

given to the court . . .52 Since 1861, this clarion call for

fairness often has ofte been revived and reiterated;.53 andIin

fact, it is chiseled into the entrance to the Federal Circuit’s

courthouse.54 Moreover, it Lincoln’s call for fairness now

It was intended by the organization of the Court of Claims mainly to remove [the investigation and adjudication of claims against the government] from the halls of Congress; but while the court has proved to be an effective and valuable means of investigation, it in great degree fails to effect the object of its creation for want of power to make its judgments final.

Fully aware of the delicacy, not to say the danger, of the subject, I commend to your careful consideration whether this power of making judgments final may not properly be given to the court . . . .

Id. 52 Id. (emphasis added).53 See, e.g., M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323, 1335 n.3 (Fed. Cir. 2010) (Newman, J., dissenting).54 See, e.g., M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323, 1335 n.3 (Fed. Cir. 2010) (Newman, J., dissenting)Id. (quoting President Abraham Lincoln, First Annual Message (Dec. 3, 1861)) (noting the engraving reminding all entrants that “[i]t is as much the duty of the government to

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underscores the Federal Acquisition Regulation (“FAR”), which was

“established for the codification and publication of uniform

policies and procedures for acquisition by all executive

agencies.”55 In its “Statement of [G]uiding [P]rinciples,” the

FAR advises that “[t]he vision for the Federal Acquisition System

is to deliver on a timely basis the best value product or service

to the customer [i.e., the government], while maintaining the

public’s trust and fulfilling public policy objectives.”56 The

FAR affirms that government procurements must be done “with

integrity, fairness, and openness.”57 The practical effect of

Federal Circuit clarification oregarding the Principles, ths

fundamental goal of fairness by givingthe practical effect would

be to give the tribunals, regulators, federal employees involved

with contracting, and contractors clear guidance about the

respective rights and responsibilities they possess under

render prompt justice against itself in favor of its citizens as it is to administer the same between private individuals”). Moreover, Lincoln’s call for fairness now underscores the Federal Acquisition Regulation (“FAR”, whch was “established for the codification and publication of uniform policies and procedures for acquisition by all executive agencies. FAR 1.101. In its “Statement of [G]guid [P]princip,” the FAR advises that “[t]he vision for the Federal Acquisition System is to deliver on a timely basis the best value product or service to the customer [i.e., the government], while maintaining the public’s trust and fulfilling public policy objectives.” FAR 1.102 (emphasis added). The FAR affirms that government procurements must be done “with integrity, fairness, and openness.” FAR 1.102(b)(3) (emphasis added).55 FAR 1.101.56 FAR 1.102(a) (emphasis added).57 FAR 1.102(b)(3) (emphasis added).

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government contracts. Such clarification would begin to remove

the ill effects of the judiciary’s well-meaning but misguided

decisions that over-protect the government Government in its

contracting capacity.58 By providing clear and well-articulated

clarification, the Federal Circuit would give meaning to the

Supreme Court’s imperative — Let the government contract.

II. Conflation and Considerable Confusion in the Application of

the Three Distinct Legal Principles in the Context of

Deciding Government Contracts Disputes: The Presumption of

Good Faith; the Duty of Good Faith and Fair Dealing; and the

Sovereign Acts Doctrine

A. The Evolution of the Core Tenet in the Decisions of the

Supreme Court: The Sovereign has the Right to Contract

and Shed its Sovereignty to Pursue Commerce in the

Marketplace

For nearly eighty years, Supreme Court decisions have

emphasized the importance of allowing the federal Federal

Ggovernment to enjoy the benefits of, and to be held accountable

for, the obligations it creates through bilateral contracting..59

TThese decisions flow from a cCivil wWar era decision issued by 58 See discussion infra Part III. Sustar (a doctrine that shields the Government from contract liability), the Supreme Court noted the negative effects of over-protection: “undermining the Government’s crey at th59 See Eighty yanited States, 292 U.S. 571, 579 (1934) (“[W]hen the United States enters into contract relations, its rights and duties therein are governed generally by the law applicable to contracts between private individuals.”).

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the Court of Claims, a case colloquially known as Deming’s

Case.60 In 1861, — coincidentally, just as President Lincoln

invoked the goal of fairness and exhorted Congress to strengthen

the Court of Claims’ remedial powers — Israel Deming contracted

with the government vernment to provide daily rations to the U.S.

Marine Corps.61 However, later that year, and again in 1862,62

the Congress imposed new, generally applicable duties that

increased Deming’s costs, leading him to perform his contracts at

a financial loss.63 Deming sued. recover his losses, arguing

that Congress had “in effect imposed new conditions upon the

performance of [his] two contracts . . . .”64 In the Court of

Claims, Deming argued that Congress had “in effect imposed new

conditions upon [his] contracts, and that thereby he has suffered

$3,558.48 [in] damages.”65

Unfortunately for Deming, the Court of Claims dismissed his

claims.66 The Court of Claims, In in thisits “seminal”67

decision, the court held that the government’s Government’s

60 See Israel Deming v. United States, 1 Ct. Cl. 190 (1865).61 Id. at 190.62 The U.S. government renewed its contract with Mr. Deming in 1862. See id.63 See id.64 Id.65 Id.66 Id. at 191.67 Joshua I. Schwartz, “Liability for Sovereign Acts: Congruence and Exceptionalism in Government Contracts Law,” 64 GEO. WASH. L. REV. 633, 652 (April 1996) [hereinafter Schwartz, Liability for Sovereign Acts].

20

general actions as a sovereign are immune from liability.—or, as

put by the court:A contract between the government and a private

party cannot be specially affected by the enactment of a general

law. . . . In form, the claimant brings this action against the

United States for imposing new conditions upon his contract; in

fact he brings it for exercising their sovereign right of

enacting laws.”68 More Iimportantly, however, the court

distinguished the government’s Government’s actions as a

sovereign from the government’s Government’s actions as a

contractor.69 The court advised:68 Deming’s Case, 1 Ct. Cl. at 1910 In the words of the Court::

A contract between the government and a private party cannot be specially affected by the enactment of a general law . . . . In form, the claimant brings this action against the United States for imposing new conditions upon his contract; in fact he brings it for exercising their sovereign right of enacting laws. (emphasis in original).

Id. (emphasis in original). 69 Id. at 190. Id. at 190. The Court spec stated that:

[T]he government entering into a contract, stands not in the attitude of the [G]overnment exercising its sovereign power of providing laws for the welfare of the State. The United States as a contractor are not responsible for the United States as a lawgiver. Were this action brought against a private citizen, against a body corporate, against a foreign government, it could not possibly be sustained. In this court the United States can be held to no greater liability than other contractors in other courts.

Id. (emphasis added);.s See also Schwartz, Liability for Sovereign Acts Schwartz, supra note , at 653 Joshua I. Schwartz, “Liability for Sovereign Acts: Congruence and Exceptionalism in government Contracts Law,” 64 Geo. Wash. L. Rev. 633, 652 (April 1996) (“According to Deming, then,

21

AccordinglyThus, the government Government should be held

accountable as any other private party would be when it acts in

its contracting capacity.70 Mr. Deming lost his case only

because he sought to hold the gGovernment to a standard of

liability that was greater than that which would apply to private

parties. 71 An apt summary of this holding comes from Joshua

Schwartz:

The general lawmaking actions of the sovereign should not be

attributed to the government as contractor and are therefore not

to be regarded as breaching the contractor’s obligations under

the contract. This bifurcation allocates the risk of general

government action that interferes with the performance of a

the United States should be regarded as though it were two separate entities, the sovereign and the contractor-government.”).70 See Deming’s Case, 1 Ct. Cl. at 191.71 See id. In other words, absent a risk allocating provision in his contract, Deming would not have been able to sue a private party for breach of contract on the basis that the U.S. Government had passed a law increasing duty fees. See Jchwartz, Liability for Sovereign Acts “Liability , at 658-592 (April 1996). Professor Schwartz noted that:

The general lawmaking actions of the sovereign should not be attributed to the government as contractor and are therefore not to be regarded as breaching the contractor’s obligations under the contract. This bifurcation allocates the risk of general government action that interferes with the performance of a government contract in the same manner that the risk is allocated in a similar nongovernment contract.

Id. at 653 (emphasis added).

22

government contract in the same manner that the risk is allocated

in a similar nongovernment contract.72

Seventy years later, in Lynch v. United States,73 the

Supreme Court arrived at a similar conclusion.74 In Lynch, the

beneficiaries of government-issued, World War I-era, “War Risk”

insurance policies sued the gGovernment for payment on the

policies.75 In his majority opinion, Justice Brandeis left no

doubt that the insurance policies were binding contracts, and

that the “War Risk policies, being contracts, [were] property and

create[d] vested rights” for the beneficiaries.76 Further,

Justice Brandeis also reaffirmed that, — despite the government’s

Government’s general privilege of sovereign immunity, — the

government’s policiesocontracts subjected the governmentntit to

liability.77 Indeed, he Justice Brandeis noted that “Congress,

as if to emphasize the contractual obligation assumed by the

72 Joshua I. Schwartz, “Liability for Sovereign Acts: Congruence and Exceptionalism in Government Contracts Law,” 64 Geo. Wash. L. Rev. 633, 652 (April 1996) (emphasis added).73 292 U.S. 571 (1934). 74 ee id. at Lynch v. United States, 292 U.S. 57157 (1934)ing Go.75 Id. at 574.76 Id. at 5776___; see also Joshua I. Schwartz, “Liability for Sovereign Acts: Congruence and Exceptionalism in Government Contracts Law,” 64 Geo. Wash. L. Rev. 633a note , at 675Error: Reference source not found (April 1996).77 See Lynch, 292 U.S. at 579; id. at chwartz, Liability for Sovereign Acts Scwpra note , at 677 (exError: Reference source not foundplaining that “Lynch rests to some extent on the conclusion that Congress had not expressly reserved the power to reduce payments under the War Risk Insurance policies”)___.

23

United States when issuing war risk policies, conferred upon

beneficiaries substantially the same legal remedy which

beneficiaries enjoy under policies issued by private

contractors.”78

Although Lynch did not involve a procurement contract,79

courts routinely have recalled its language when articulating the

distinction between acts the Ggovernment takes in its sovereign

capacity and acts it takes in its contracting capacity.80 For

example, Justice Brandeis emphasizeddeclared that “[v]alid

contracts are property, whether the obligor be a private

individual, a municipality, a sState, or the United States.”81

And Iin language that affirms the importance of judicial

neutrality towards the gGovernment and government contractors, he

also stated that the: “P[p]unctilious fulfillment of contractual

obligations is essential to the maintenance of the credit of

public as well as private debtors.”82 FinallySignificantly,

Justice Brandeis stated articulated the “Core Tenet” by declaring

thatdenoted in this article: “[W]when the United States enters

into contract relations, its rights and duties therein are

78 Lynch, 292 U.S.. t 581. Id.79 Writing for the majority, Justice Brandeis noted that “[t]hese contracts, unlike others, were not entered into by the United States for a business purpose.” Id. at 576___.80 See, e.g., Cherokee Nation of Okla. of Ok. v. Leavitt, 543 U.S. 631, 646 (2005); (Lynch’s h durin; United States v. Winstar Corp., 518 U.S. 839, 884-85 (1996).81 Lynch, 292 U.S. at ___79.82 Id. at 580 ___.

24

governed generally by the law applicable to contracts between

private individuals.”83

Sixty years later, in United States v. Winstar Corp., the

Supreme Court again examined the rights and responsibilities the

Ggovernment bears in its contracting capacity.84 The Court’s

plurality opinion articulated the same, fundamental conclusions

expressed, often using the same language, that Justice Brandeis

had articulated in issuing the majority opinion in Lynch.85

TheWinstar’s plurality opinion again stressed the significance of

the Core Tenet to the judiciary’s resolution of government

contracts disputes.86 adIt Winsr also considered the application

of Principle 3 (the sovereign acts doctrine) as a defense when a

contractor alleges that the government t has breached a

contract.87 In so doingexamining reign acts defense, it Winstar

83 Id. at 579 (emphasis added); see also Schwartz, Liability for Sovereign Acts S supra note , at JoshError: Reference source not foundua I. Schwartz, “Liability for Sovereign Acts: Congruence and Exceptionalism in Government Contracts Law,” 64 Geo. Wash. L. Rev. 633, 675 (April 1996) (discussing Lynch, and noting the majority’s holding that “[t]he United States are as much bound by their contracts as are individuals”) (alteration in original) (internal quotation marks and citation omitted).84 Id. W 518 U.“We took this case to consider the extent to which special rules, not generally applicable to private contracts, govern the enforcement of governmental contracts at issue here.”)839.85 See United States v. Winstar Corp., 518 U.S. 839d. at, 884-85 (citing Lynch, 292 U.S. at 580) (1996) (“As Justice Brandeis recognized, ‘[p]unctilious fulfillment of contractual obligations is essential to the maintenance of the credit of the public as well as private debtors.’”). (citation omitted)).86 See id. at 895. 87 Id. at 891-910.

25

Corp. set the stage for the judiciary’s subsequent assessment of

the application and interplay of the Core Tenet and the three

Principles.

Winstar is a product of the 1980s’ savings and loan, or

“thrift,” crisis.88 In the early 1980s, thrifts rapidly began to

fail.89 In response, the Ggovernment encouraged healthy thrifts

to acquire failing thrifts in a process—also known as

“supervisory mergers,” —and offered, as inducement, favorable

accounting standards for the healthy, acquiring thrifts.90 In

88 Id. at 8443-48 (recounting the history of “[t]he modern savings and loan industry”); see also Joshua I. SchwartzJoshua I. Schwartz, Assembling Winstar: Triumph of the Ideal of Congruence in Government Contracts Law?, “Assembling Winstar: Triumph of the Ideal of Congruence in government Contracts Law?,” 26 PUB. CONT. L.J. 481, 482 (Summer 1997) [hereinafter Schwartz, Assembling Winstar].89 United States v. Winstar Corp., 518 U.S. 839,t 845 (1996). As recounted in Justice Souter’s plurality opinion, with “the combination of high interest rates and inflation in the late 1970’s and early 1980’s, rought about a . . . crisis in the thrift industry.” Id. mMany thrifts suffered as “the costs of short-term deposits overtook the revenues from long-term mortgages. . . .[.]” Id. As a result, “435 thrifts failed between 1981 and 1983.” Id.90 Id. at 847-48 (“[T]he principal inducement for these supervisory mergers was an understanding that the acquisitions would be subject to a particular accounting treatment that would help the acquiring institutions meet their reserve capital requirements imposed by federal regulations.”). Among the accounting incentives: the recognition of supervisory goodwill, the ability to amortize goodwill assets, and the “double counting” of the cash as both a tangible and intangible asset” to meet capital requirements. Id. at 849-53;.;see see e also Schwartz, Assembling Winstar, supra note 98, at 484. Professor Schwartz explains: Joshua I. Schwartz, mbli“Assembling Winstar: Triumph of the Ideal of Congruence in Government Contracts Law?,” 26 Pub. Cont. L.J. 481, 484: (Summer 1997) (

26

1989, however, Congress enacted the Financial Institutions

Reform, Recovery, and Enforcement Act (“FIRREA”),91 which altered

the thrifts’ accounting standards, eliminating the once-favorable

treatment.92 FIRREA’s impact was “swift and severe,”93 and the

revised financial standards drove once-healthy thrifts to the

brink of insolvency.94

The three Winstar plaintiffs/respondents had acquired

failing thrifts through supervisory mergers.95 In FIRREA’s wake,

two of the plaintiffs/respondents were seized and liquidated,

while the third narrowly avoided the same fate.96 The

plaintiffsthree sued and “claimed that the application of [the]

new, statutorily mandated standards constituted a breach of the

“To encourage and facilitate these supervisory mergers, the federal thrift agencies allegedly promised the acquiring entities that they would enjoy favorable regulatory accounting treatment that would permit them to treat the amount by which the purchase price paid exceeded the market value of the insolvent thrift institutions as goodwill that could be used to satisfy capital requirements imposed by regulators.”).

Id. 91 Financial Institutions Reform, Recovery, and Enforcement Act of 1989, Pub. L. No. 101-73, 103 Stat. 183 .92 United States v. Winstar Corp., 518 U.S. 839,t 856-57 (1996).93 Id. at 857.94 ee Iid. at 857, 85857-58noting that “many institutions immediately fell out of compliance [after FIRREA’s enactment] . . . making them subject to seizure by thrift regulators”).95 Id. at 858.96 Id. at 858.

27

agreements that they had entered into with federal regulators in

connection with the supervisory mergers that they had

undertaken.”97 The Court of Federal ClaimsClaims Court98 and an,

later, the en banc Federal Circuit99 agreed with the

97 Joshua I. Schwartz, Assembling Winstar, : “Assembling Winstar: Triumph of the Ideal of Congruence in Government Contracts Law?,” 26 Pub. Cont. L.J. 481, 485 (Summer 1997); see also Winstar, 518 U.S. at 858 (“Believing that the [goveError: Reference source not foundrnment agencies] had promised them that the supervisory goodwill created in their merger transactions could be counted toward regulatory capital requirements, respondents each filed suit against the United States . . . . . . .”).98 Winstar Corp. v. United States, 26 Cl. Ct. 904 (1992).99 instar Corp. v. United States, 64 F.3d 1351 (Fed. Cir. 1995) (en banc). Initially, on interlocutory appeal, a divided panel of the Federal Circuit reversed the Court of Federal Claims. See Winstaror, 518 U.S. at 859ng Win. v. United States, 994 F.2d 797, 811-13 (Fed. Cir. 1993). However, the Federal Circuit reheard the case en banc and reversed its first decision. Winstar Corp., 518 U.ting Winstar,d 1531 (Fed. Cir. 1995))..Id.

Stanfield Johnson has illuminated Judge Newman’s critical role as the dissenting judge on the original Federal Circuit panel in Winstar. See W. Stanfield The Federl Circuit’s Great DissenterJohnson, “The Federal Circuit’s Great Dissenter and Her ‘National Policy of Fairness to Contractors,’” 40 Pub. Cont. L.J. 275, 284-875 (Winter 2011). He Mr.Error: Reference source not found Johnson describes her ge New’s dissenting opinion as “rare because it ultimately prevailed—and can be said to have had a significant impact on the Federal Circuit’s contract jurisprudence.” Id. at 284-85. Further, his description of her dissenting opinion harkens to the normative goals of neutrality, as he describes her emphasis on “the bargaining of contracts, the essentiality of the Ggovernment’s commitments, and the financial benefits to the Ggovernment.” Id. at 286. (“She commented that ‘governmental responsibility is not a new idea in this nation’s law’ and sovereign acts are ‘not a boundless justification for government non-liability.’” (citations omitted)).

Judge Newman joined the en banc majority. Ide.at 28. According to Mr. Johnson, Winstar is the “high-water mark” in

28

plaintiffs/respondents.100 The Federal Circuit concluded that the

Ggovernment had formed express contracts with the

plaintiffs/respondents, and that these contracts were predicated

on the Ggovernment’s promise of favorable accounting.101

The Supreme Court granted certiorari for the express purpose

of evaluating whether and to what extent government contracts are

governed by general contract law (the Core Tenet) — and, in

particular, to evaluate the viability of the Ggovernment’s unique

defenses of “unmistakability” and “sovereign acts.”(Principle

3).102 Justice Souter — joined by Justices Stevens, Breyer, and

(in part) O’Connor — authored the Court’s plurality opinion.103

In discussing the defense of unmistakability and the application

of the sovereign acts doctrine, tThe plurality opinion examined

when it is appropriate to apply the sovereign acts doctrine to

shield the gGovernment from liability for breach damages for

Judge Newman’s “persistent—and largely lonely—advocacy of fairness in the adjudication of contractor disputes with the sovereign.” Id. at 333. (citation omitted).100 Winstar, 518 U.S. at 858-59.101 Winstar, 64 F.3d at 1540. Id. at 859.102 See Winstar, id, 518 U.S. at 860 (“We took this case to consider the extent to which special rules, not generally applicable to private contracts, govern enforcement of the governmental contracts at issue here.”).103 See generally idd. at 843. Justice Breyer wrote a separate concurring opinion. Id. at 910 (Breyer, J., concurring). Justices Scalia, Kennedy, and Thomas concurred in the judgment, with Justice Scalia writing separately. Id. at 919 (Scalia, J., concurring). Chief Justice Rehnquist and Justice Ginsberg dissented. Id. at 924 (Rehnquist, J., dissenting).

29

which the governmentit would otherwise be liable.104 Under the

facts of Winstar, the Cournt found that the sovereign acts

doctrine did not shield the Ggovernment from liability.105

Many have attempted to find a consensus amongin the Court’s

plurality and separately written opinions.106 While it is not the

purpose of this article to cover this same groundissues already

discussed at length by other authors, it is important to note

that it has been persuasively argued that the plurality in

Winstar did affirmCourt’s majority affirmed the Court’s prior

application of the Core Tenet.107 For exampleConsequently, of

104 Id. at 891-910.105 See generally id. at 891 (“The Government’s position cannot prevail, however, for two independent reasons. The facts of this case do not warrant application of the [sovereign acts] doctrine, and even if that were otherwise the doctrine would not suffice to excuse liability under this governmental contract allocating risks of regulatory change in a highly regulated industry.”).106 See, e.g., Rodger D. Citron, “LLessons from the Damages Decisions Following United States v. Winstar Corp.,” 32 PUB. CONT. L.J. 1 (Fall 2002); Joshua I. Schwartz, The Status of the Sovereign Acts and Unmistakability Doctrines in the Wake of Winstar: An Interim Report, unote“The SError: Reference source not foundtatus of the Sovereign Acts and Unmistakability Doctrines in the Wake of Winstar: An Interim Report,” 51 ALA . L. REV. 1177 (Spring 2000)[hereinafter Schwartz, The Status of the Sovereign Acts and Unmistakability Doctrines]; Thomas JR. Gilliam, Jr., Note, “Contracting with the United States in its Role as Regulator: Striking a Bargain with an Equitable Sovereign or a Capricious Siren?,” 18 MIS S. C. L. REV. 247 (Fall 1997); Joshua I. Schwartz, “Assembling Winstar, : Triumph of the Ideal of Congruence in Government Contracts Law?,note 9” 26 Pub. Cont.Error: Reference source not found L.J. 481 (Summer 1997).107 See Joshua I. Schwartz, Assembling Winstar, “Assembling Winstar: Triumph of the Ideal of Congruence in Government Contracts Law?,” 26 Pub. Cont. L.J. 481, upra note 8, aError: Reference source not foundt 489-533 (Summer 1997) (describing Justice Souter’s plurality opinion, which supports applicability

30

critical import for this article is guage used by Justice

Souter’s language is important , as it arguably reflects a

consensus of the Court and indisputably reaffirms what Justice

Brandeis advised in Lynch: “[W]hen the United States enters into

contract relations, its rights and duties therein are governed

generally by the law applicable to contracts between private

individuals.’”108 Justice Souter recognized that the “practical

capacity to make contracts” is, by itself, “’the essence of

of general common law); id. at 533-34 (describing support for the same principle in Justice Breyer’s opinion); id. at 543 (describing Justice Scalia’s opinion, which appears to support this principle, as well).108 See Winstar, 518 U.S. at 895 (quoting Lynch v. United States, 292 U.S. 71,at79 (1934)), 292 U.S. at 579(4)) (internal quotation marks omitted). In addition to Lynch, Justice Souter recited other caseslaw supporting the application of general contract law to government contracts. See, e.g., id. at 884 n.28 (“’[T]he Federal government, as sovereign, has the power to enter contracts that confer vested rights, and the concomitant duty to honor those rights . . . ‘.”)(alteration i original) (emphasis added) (quoting Bowen v. Public Agencies Opposed to Soc.ial Sec. Entrapment, 477 U.S. 41, 52 (1986)) (emphasis added))); id. at 886 n.31 (“’[I]t is no less good morals and good law that the government should turn square corners in dealing with the people than that the people should turn square corners in dealing with their government.’”) (quoting Heckler v. Comm. Health Servs. of Crawford Cty., Inc., 467 U.S. 51, 61 n.13 (1984)) (emphasis added))); id. (“’It is very well to say that those who deal with the Ggovernment should turn square corners. But there is no reason why the square corners should constitute a one-way street.”) (quoting Fed. Crop Ins. Corp. v. Merrill, 332 U.S. 380, 387-88 (1947)) (Jackson, J., dissenting)))); id. at 895 n.39 (“’The United States does business on business terms.’”) (quoting Clearfield Trust Co. v. United States, 318 U.S. 363, 369 (1943))); id. (“’The United States, when they contract with their citizens, are controlled by the same laws that govern the citizen in that behalf.’”) (emphasis added) (quoting United States v. Bostwick, 94 U.S. 53, 66 (1877)) (emphasis added))).

31

sovereignty.’”109 The Winstar opinion plurality also stressed

that the judiciary undermines the Ggovernment’s ability to

contract —- or in other ordsin effect, it interferes with the

Ggovernment’s sovereign right to contract — when it treats the

Ggovernment differently than it would treat a private party to a

contract.110 Justice Souter noteds, as an “essential point” from

precedent, that the Ggovernment, in its contracting capacity,

should be “put . . . [] in the same position that it would have

enjoyed as a private contractor.”111 When the judiciary over-

protects the Ggovernment inwhen resolving government contract

disputes, it inhibits the government’s freedom to contract, with

“the certain result of undermining the g[G]Government’s

credibility at the bargaining table and increasing the cost of

its engagements.”112

In additionWinstar, the Court in Winstar wrestled with the

need to define and reassess the circumstances under which it is

appropriate to relieve the gGovernment from liability for payment

of damages for breach of contract by reason of the exercise of a

sovereign act (Principle 3, the sovereign acts doctrine).113 The

109 instar, 518 U.S. at 884 (quoting United States v. Bekins, 304 U.S. 27, 51-52 (1938)). 95Id.110 See id. at 884-85 (noting negative effects of over-protecting the Government when it acts in a contractual capacity).111 Id. at 892 (emphasis added) (discussing Horowitz v. United States, 267 U.S. 458, 461 (1925)) (emphasis added).112 Id. at 884 (emphasis added).113 See id. at 891-910..

32

plurality rejected the Ggovernment’s argument that all

gGovernment actions (in Winstar, enactment of legislation) that

are designed to advance the general welfare (i.e., that are

“public and general” in nature) automatically invoke the

sovereign acts doctrine.114 The plurality recognized that,

sometimes, the gGovernment acts in a way that blurs the divide

between the gGovernment’s role as sovereign and its role as

contractor.115 :

The government argues that “[t]he relevant question [under these cases] is whether the impact [of governmental action] ... is caused by a law enacted to govern regulatory policy and to advance the general welfare.” Brief for United States 45. This understanding assumes that the dual characters of government as contractor and legislator are never “fused” (within the meaning of Horowitz) so long as the object of the statute is regulatory and meant to accomplish

114 Id. at 893..115 Id. at 893-94. auoting fromor the Unid States’ Brief, Tthe pluraliy went on to no

The Government argues that “[t]he relevant question [under these cases] is whether the impact [of governmental action] ... is caused by a law enacted to govern regulatory policy and to advance the general welfare.” . . . Bhis understanding assumes that the dual characters of Ggovernment as contractor and lgislator are never “fused” (within the meaning of Horowitz) so long as the object of the statute is regulatory and meant to accomplish some public good. That is, on the Ggovernment’s reading, a regulatry object is proof against treating the legislature as having acted to avoid the Ggovernment’s contractual obligatons, in which event the sovereign acts defense would not be applicable. But the govenment’s position is open to serious objection.

Id. (alterations in original) (emphasis added).

33

some public good. That is, on the government’s reading, a regulatory object is proof against treating the legislature as having acted to avoid the government’s contractual obligations, in which event the sovereign acts defense would not be applicable. But the government’s position is open to serious objection. To address the phenomenon of the gGovernment acting at once as a sovereign and a contractor, the plurality recognized that it is important to examine the multiple effects that can follow from a Ggovernment action, rather than merely the motive that originally led to that actionthe effects.116 As such, “a governmental act will not be public and general if it has the substantial effect of releasing the Government from its contractual obligations.” The plurality recognized that, in certain circumstances, finding the government liable for breach of contract damages when it takes a sovereign act (e.g., enactment of legislation) should not be seen as blocking the government’s ability to take the sovereign act.rt stressed that the “substantial effect” of FIRREA was to relieve the Government of the inducements it promised to the thrifts. As to the those without existing contracts at the time the sovereign act is taken, considee the act is “public and general”; ose who time of the act, but, as to those with contracts that will be adversely affected by the sovereign act, the act subjects the government to breach damagesly affected.117 Thus, the Court rejected the Government’s rexplicitly “target particultion did just that (its substantial effect). 118 This is not to conflate or confuse the rights and obligations the

116 See id. at 899-903.117 See id. at 902-03.118 See id. (recognizing that “[l]egislation can almost always be written in a formally general way, and the want of an identified target is not much security when a measure’s impact nonetheless falls substantially upon the Government’s contracting partners”).

34

government has when it acts in its sovereign capacity vis-à-vis those it has when it acts in its contracting capacity. Rather, it is to say that a single government act may be sovereign in nature in some respects, and therefore shield the government from exposure with regard to the “public and general” effects of the act, and at the same time contractual in nature in other respects, and thus subject the government to liability for breach damages with regard to adverse effects on existing government contracts.119

The Supreme Court’s decisionss followingin Winstar’s wake

have continued to affirm the Core Tenet — that, when contracting,

the government is bound by general contract law.120 For example,

in Mobil Oil Exploration & Producing Southeast, Inc. v. United

States,121 the Court analyzed whether legislation enacted

subsequent to the government’s execution of offshore drilling

leases granted to the plaintiffs/petitioners breached the

gGovernment’s obligations under the leases.122 Even with the

intricate regulatory framework applicable to offshore energy

exploration,123 the Court’s analysis began by reiterating thewith

119 See id.Iat . hand there has been no demonstration that awarding damages for breach would be tantamount to any such limitation.

120 See, e.g., Cherokee Nation of Ok. v. Leavitt, 543 U.S. 631, 644, 646 (2005); Mobil Oil Exploration & Producing. SE.e., Inc. v. United States, 530 U.S. 604, 607-08 (2000).121 530 U.S. 604 (2000).122 See generally Mobil Oil, 530 U.S. at 611-64604Ad.123 Thomas J. Madden and & Andrew S. Gold, Supreme Court Holds Government to Same Standards as Private Party in Breach Action; Future of “Sovereign Acts” Doctrine in Doubt, 42 GOV’T CONTRACTOR ¶ 277, at 1 (2000). upre , a T]he Error: Reference source not foundecognized that Government delay could constitute a breach

35

the “basic contract law principles[],” first(the Core Tenet)

announced in Lynch and reaffirmed in Winstar.124 Then, in a

decision “peppered with references to the Restatement of

Contracts, as well as citations to contract law treatises by

Professors Williston, Corbin, and Farnsworth,” the Court rejected

the “variety of statutes and regulations which, the

[overnment]GovU..S. claimed, justified its actions.”125

B. An Overview of Tthe Principles Tthat Govern the Rights

Aand Obligations Tthe Government Enjoys Iin Iits

Sovereign Capacity Compared Wwith Those Iit Enjoys Iin

Iits Contracting Capacity

Nearly every decision in the federal judiciary that has

dealt with the Government’s contracting capacityse issues in the

federal judiciary has acknowledged the universal applicability of

the Core Tenet: “When the United States enters into contract

relations, its rights and duties therein are governed generally

where complex regulations are involved.”). “Supreme Court Holds Government to Same Standards as Private Party in Breach Action; Future of ‘Sovereign Acts’ Defense in Doubt,” 42 No. 27 Gov. Con. ¶ 277 (July 19, 2000).124 obil Oil, 530 U.S. 604, 607-08 (2000) ting Winstar Corp.,.S. at 895). (quoting LynS. at 579)(emphasis added).125 Thomas J. Madden and Andrew S. Gold, “Supreme Court Holds Government to Same Standards as Private Party in Breach Action; Future of ‘Sovereign Acts’ Defense in Doubt,”pra note 1342, a 4 (citingdiscul Oil, 530 U.S. 604at 615-20).. 42 No. 27 Gov. Con. ¶ 277 (July 19, 2000). Only pre-existing statutes and regulations would have allowed the government to skirt its obligations, and even pre-existing statutes and regulations incorporated into the leases “should not be read to include subsequent statutes.” Id.

36

by the law applicable to contracts between private

individuals.”126 However, a number of judges have neglected

misapplied the Core Tenet when evaluating the application of one

or more of the trio of Principles that underlie itthe Core

Tenet.127 These judges have eitheremployed considerable

conflatedion, melteding, or ignoredborrowing, and ignoring of one

or more of the Principles.128

The fundamental problem is the unwillingness of some judges

to employ rigorous analysis to ensure recognition that the rights

and effects that define and flowollow from the Government’s

sovereign acts are distinct from the rights and effects that

define and flowollow from the Government’sgovernment contractual

acts.129 The problem derives from certain decisions issued by the

126 Lynch v. United States, 292 U.S. 571, 579 (1934)cCore tTenet). Dons fo Supreme Court down to te, Federal Circuit and Court o Fapply the cCore tTenet in their decisions today. See, e.g., obil Ol, 530 kis Carpentry, Inc. v. United States, 609 F.3d 1323, 1245 (Fed.C2011).127 See discussion infra Part II.C.2. , Am-P128 See discussion infra Part II.C (noting the imprecision in recent ederal Circuit decisions); discussion infra &ar III.A (noting the messy results in tribunals below as a result of Federal Circuit’s imprecision).129 See generally Ralph C. Nash, The Government’s Duty of Good Faith and Fair Dealing: Proving a Breach, 23 NASH & CIBINIC REP. ¶ 66 , at 189 (Dec. 2009) [hereinafter Nash, Proving a Breach] (noting that different standards of analysis apply depending upon whether the Government is acting as a sovereign or as a contracting party and that recent decisions have “not articulate[d] a clear line between the two situations”). AThe Government’s Duty of Good Faith and Fair Dealing: Proving a Breach, 23 NO. 12 NASH & CIBINIC REP. ¶ 66 , 189 (2009). Unfortunately, recent decisions have “not articulate[d] a clear line between the two situations.” Id.

37

Federal Circuit regarding the three Principles, which have been

perpetuated recently in some decisions issued by the tribunals

below.130 Accordingly, this sectionlet us first briefly examines

the fundamentals of each of the three Principles that are

subordinate to the Core Tenet, which together shape this area of

law. The next sectionWe then analyzes how some decisions issued

by the Federal Circuit and the tribunals below have merged the

three distinct Principles, creatinginto tangled confusion.131

Each of the three Principles is properly understood by

examining whether or not the pPrinciple applieshas applicability

(1) in the context of the Ggovernment acting in its sovereign

capacity,; (2) in the context of the gGovernment acting in its

contracting capacity, or (3) in situations relating solely to

Principle 3, where the gGovernment acts in a way that has

sovereign effects as to the general public, but contractual

effects as to contractors adversely affected by the sovereign

act. Broadly stated, the operative rule is that each of the

three Principles operates only in one of the two arenas (the

sovereign arena or contractual arena), but not in both. arenas132 130 See discussion infra Part II.C & Part III.A. (messy results in tribunals below as a result of Fe131 132 See Fireman’s Fund Ins. Co. v. United States, 92 Fed. Cl. 598, 677-78 (2010). The court distinguished between the two types of situations in which each Principle applies. If “the Government’s alleged wrongful conduct . . . arise[s] directly out of the contract,” then duty of good faith analysis (Principle 2) applies. See id. On the other hand, if “another government actor” causes the breach (e.g. Congress passing legislation),

38

Of course,— although, with this rule has some important

exceptions,.133 Bbut it is the rule, not the exceptions, that

matters. Yet, decisions of the Federal Circuit and some

decisions of tribunals below have melted the boundaries and

distinctions that separate the two arenas.

Let us restate our understanding of the three legal

Principles and the law that governs themThe following subsections

provide a more detailed overview of the three Principles.:134

1. Principle 1: The Presumption of Good Faith

The presumption of good faith presumes that ggovernment

employees act properly and in good faith when they perform their

professional duties.135 This Principle 1 applies in the sovereign

arena and, not in the contractual arena, with onelimited

exception.136 The exception —s that the presumption can apply in

then sovereign acts analysis applies (Principle 3). See id. Lik id. Thus, Principles 1 and 3 apply when the Government acts as sovereign, whereas Principle 2 applies when the Government acts as a contractor. 133 See discussion supra note Error: Reference source not found; and infra note Error: Reference source not foundand accompanying text. 134 The statement of the Principles here is the authors’ articulation based on their understanding of the applicable case law. We state the Principles first in our own words, and then follow with discussion of the case law that has led us to our understanding. 135 See, e.g., Armstrong et al., , Pupko, & Yenovkian, supra note Error: Reference source not found, at 93 (discussing this “well-established presumption”).136 See Nibley, supra note , at UnravError: Reference source not foundeling CONT. L.J. 23 , 25-26. (2006). Please note that the author switched the order of Principle 1 and 2 in this article. In Unraveling the Mixed Messages, the author had errd faith as

39

a dispute in the contractual arena, but only if (with very few

exceptions), the contractor to the dispute alleges bad faith on

the part of one or more government employees.137 Where a

contractor in a contract dispute alleges bad faith on the part of

one or more government employees, courtsfora have imported the

evidentiary rule that applies in the sovereign arena — the

requirement that the contractor must prove by clear and

convincing evidence subjective bad faith or animus on the part of

the government employee(s).138 Absent invocation by the

contractor in a dispute, the presumption of good faith has no

relevance in the contractual arena (with the limited

regulatory/contractual exception noted).

2. Principle 2: The Duty of Good Faith and Fair

Dealing, And Its Corollaries, The Duty To

Cooperate and Not To Hinder

This Principle 2 applies in the contractual arena, not in

the sovereign arenato the Government’s contractual powers, rather

Principle and the tion ofgood faith as Principle 2. See id.137 Regulatory bodies have created a small number of exceptions where regulations and/or contract clauses commit action or inaction to the discretion of applicable government employees, such as the Termination for Default clause. See FAR 49.4. See generally Rebecca E. Pearson, The of Discretio(1996), available at http://wBut these are very few in number; an increase would run afoul of the Core Tenet and the Supreme Court decisions discussed above.138 See, e.g., Major Bryan O. Ramos, Never Say Die: The Continued Existence of the Ggovernment Officials’ Good Faith Presumption in Federal Contracting Law and the Well-Nigh Irrefragable Proof Standard After Tecom, 63 A.F. L. REV. 163, 165-67 (2009).

40

than to its sovereign powers. The Principle is a fundamental

precept of contract law,. It which posits that each party to a

contract owes a duty to the other to allow the other to enjoy the

fruits of its contractual bargain.139 The duty involves

affirmative obligations, such as the duty to perform actions that

are foreseeable at the time of contracting and necessary to

enable the other party to enjoy the fruits of its bargain (the

duty to cooperate),.140 and It also involves obligations of

restraint, such as the duty not to take action that will

frustrate the other party’s ability to enjoy the fruits of its

bargain (the duty not to hinder).141 The duty of good faith and

fair dealing applies with equal force to both parties to a

contract.142 Courts at every level have stated that the

139 See Centex Corp. v. United States, 395 F.3d 1283, 1304 (“The covenant [of good faith and fair dealing] imposes obligations on both contracting parties that include the duty not to interfere with the other party’s performance and not to act so as to destroy the reasonable expectations of the other party regarding the fruits of the contract.”); see also RESTATEMENT (SECOND) OF CONTRACTS § 205 (1981); see also Corp. v. United States1283, 1304 (“t [of good and 140 S , e.g.,reii.141 See, e.g., Precision Pine & Timber, Inc. v. United States, 596 F.3d 817, 820 n.1 (Fed. Cir. 2010) (“Both the duty not to hinder and the duty to cooperate are aspects of the implied duty of good faith and fair dealing.”).See, e.g., id.142 RESTATEMENT (SECOND) OF CONTRACTS § 205 (1981) (“Every contract imposes upon each party a duty of good faith and fair dealing.”) (emphasis added).

41

Ggovernment and contractors alike are subjected to the duty of

good faith and fair dealing.143

Establishing a breach of the duty of good faith and fair

dealing involves assessment of objective evidence.144 Thus, Iit

is not necessary when assessing an alleged breach of the duty to

examine the intent of the allegedly breaching party.145

RatherAgain, the question is,: does a preponderance of the

evidence establish that one party breached its duty by notto

cooperatinge or byand not to hindering the other party in the

performance of the contract?146 Evidence of the subjective bad

intent of the allegedly breaching party (including the

government) can, but need not be, evidence that is assessed in

determining if a preponderance of the evidence exists to

establish a breach of the duty of good faith and fair dealing.147

143 See, e.g., Tecom, Inc. v. United States, 66 Fed. Cl. 736, 770 (2005) (citing many cases in which the Government has been found to be in breach of the implied duty of good faith).144 See id. (applying a reasonableness standard to determine whether Government’s alleged breach violated the duties to cooperate and not to hinder performance).145 See iId. Examination of intent is only necessary when trying to overcome the presumption of good faith (Principle 1). See, e.g., Am-Pro Protective Agency, Inc. v. United States, 281 F.3d 1234, 1240 (Fed. Cir. 2002).146 See Armstrong et al., n, supra note 34, at 94; see also Fireman’s Fund Ins. Co. v. United States, 92 Fed. Cl. 598, 679 (2010) (applying preponderance of evidence standard to contractor’s claim that Government breached duty of good faith).147 See generally RESTATEMENT (SECOND) OF CONTRACTS § 205 cmt. d (listingproviding list of actions likely to qualify as indicia of bad faith). As we discuss in more detail below, it is remarkable to discover that the rules that fall from Principle 1 are often merged into

42

Principle 2 has no place in the sovereign arena, but

occupies a paramount perch in the contractual arena.

3. Principle 3: The Sovereign Acts Doctrine

As the name implies, this Principle 3 springs from the

sovereign arenaapplies to the Government’s sovereign capacity.

However, unlike Principle 1 (the presumption of good faith), it

can become an important consideration when applying Principle 2

(the duty of good faith and fair dealing), but only in certain

circumstances.

GenerallyIn simplistic terms, Principle 3 stands for the

proposition that the sovereign is the sovereign, and except in

rare instances, no entity can be seen to take action that would

strip the sovereign of its powers.148 The sovereign acts doctrine

enters the contractual arena when the government Government is

alleged to have breached a government contract through its

exercise of a sovereign power that deprives a contractor of all

or a portion of the benefit the contractor reasonably expected to

those that govern Principle 2 for no other reason than that both Principles use the term “Good Faith.” With no more than this lily pad to stand on, a number of decisions have reasoned a breach of the duty of good faith and fair dealing requires a showing of bad faith, bad intent on the part of the government, which can only be overcome by rebutting the presumption of good faith, wrongly imported in these misguided decisions from the sovereign arena into the contractual arena. 148 OSeegenerally ACQUISITION ADVISORY PANEL , supra note , at Error: Reference source not found8495 (lting some of the special advantages that the Government enjoys when it acts as sovereign).

43

receive from a pre-existing contract with the gGovernment.149 In

such instances, the contractor alleges that the gGovernment’s

exercise of its sovereign power — for example, the enactment of

legislation — has the effect of frustrating the contractor’s

ability to enjoy the fruits of the bargain that it anticipated

when it contracted with the gGovernment.150

As might be expected, and as we discussed above, this

Principle 3 is among those rare issues pertaining to government

contracts law that has found its way to the Supreme Court more

than once in the last two decades.151 In both Winstar and Mobil

Oil, the Court found it necessary to assess whether or not the

sovereign acts doctrine should relieved the gGovernment of

contractualits obligations to fulfill its duties under certain of

its contracts.152 The Court in thoese decisions relied, and

149 e.See, e.g., Mobil Oil Exploration & Prod. SE., Inc. v. United States, 530 U.S. 604 (2000) (considering the application of the sovereign acts doctrine when the enactment of the Outer Banks Protect Action (OBPA) deprived government contractors of their rights under preexisting oil drilling lease contracts). .obil Oupreme Coltimately, the Court found that the sovereign acts doctrine did not apply. Id. at 618-19.150 See, e.g., id. at 611-14. In Mobil Oil, the contractors claimed that OBPA interfered with the fruits of their government contracts by substantially delaying the Department of Interior’s approval of their leasing programs. See id. 151 See discussion supra Part A. 152 See Mobil Oil, 530 U.S. at 618-20 (holding that sovereign acts doctrine does not apply); United States v. Winstar Corp., 518 U.S. 839, 891 (1996) (also holding that sovereign acts doctrine did not excuse Government’s breach of preexisting contract).

44

arguably expanded upon, precedent.153 The decisions have been

interpreted to articulate a rule that establishes that the

gGovernment is shielded from liability for breach of contract if

the effects of its sovereign act are “public and general” in

nature.154 Conversely, if at least part of the motivation for and

effect of the gGovernment’s exercise of sovereignty is to deprive

a contractor of benefits it reasonably believed it would derive

from a contract with the gGovernment, the gGovernment cannot be

shielded from liability for breach damages.155 Thus, if the

“sovereign act” is the enactment of legislation, and it is this

sovereign act that allegedly caused a breach of contract, the

question is whether the legislation has broad and general effects

and applies in a “public and general” manner, or conversely, has

effects that fall primarily upon a class of entities within which

the complaining contractor falls.156 But Aas the plurality in

Winstar recognized, merely because it is proper to find that the

gGovernment owes one or more contractors under thedamages due to

153 See Winstar, 518 U.S. 839, 891-910 (1996). , 518 U.ar, the Supreme Court based its decision onin precedent, such as Horowitz vUnited States, 267 U.S. 458 (1925). See Winstar Corp., 518 U.S. id. at 891-92. H, the Court also anded upon precedent through its focus on the substantial effects of a sovereign act. See id. at 899-900.899-900.154 See id. at 891.155 See id. at 900 (“[H]olding that a governmental act will not be public and general if it has the substantial effect of releasing the Government from its contractual obligations . . . .”).156 See id. at 897-98 (discussing the importance of generality to the sovereign acts doctrine).

45

the adverse effects that fall from a sovereign acts doctrine does

not mean that the finding of liability blocks the gGovernment’s

ability to pursue the sovereign act in question.157

The underpinning of the sovereign acts doctrine is that,

except in limited circumstances that invoke the unmistakability

doctrine, the gGovernment cannot contract away its sovereign

powers.158 For example, the gGovernment cannot through contract

agree to refrain from enacting certain legislation or from

regulating in a certain way.159 The sovereign acts doctrine

prevents private parties, including contractors, from enjoining

the sovereign from exercising its powers.160 It exempts the

gGovernment from the fundamental rule of contract law that a

party to a contract cannot blame its own breach on the

impossibility of performance when its own acts or inactions

created the impossibility.161 And, the doctrineit recognizes that

contract lawthis rule should not be applied to government

contract disputes involving the Government in a way that would

have the effect of blocking the government from exercising

157 See id. at 879.158 Id. at 87 (anogin 159 See id. at 877 (recognizing the “general principle that, absent an ‘unmistakable’ provision to the contrary, ‘contractual arrangements, including those to which a sovereign is party, remain subject to subsequent legislation by the sovereign.’”) (quoting Bowen v. Pub. Agencies Opposed to Social Security Entrapment, 477 U.S. 41, 51 (1986)).160 See id. at 879. 161 See id. at 895-96.

46

sovereign powers. In discussing the origins and purposes behind

the sovereign acts doctrine, Justice Souter stressed that the

doctrine was conceived to work with the Core Tenet, not against

it:

An even more serious objection is that allowing the Government to avoid contractual liability merely by passing any “regulatory statute” would flout the general principle that, “[w]hen the United States enters into contract relations, its rights and duties therein are governed generally by the law applicable to contracts between private individuals.” Lynch v. United States, 292 U.S., at 579, 54 S.Ct., at 843. . . . Careful attention to the cases shows that the sovereign acts doctrine was meant to serve this principle, not undermine it.162

C. Some Decisions of the Federal Circuit and Tribunals

Below Have Created Confusion

162 Id. at 895 (emphasis added) (quoting Lynch v. United States, 292 U.S. 571,, at (193), 54 S.Ct.s added_.

47

Some Federal Circuit decisions and a number of decisions

issued by tribunals below have applied threethese Principles in a

loose fashion., mixing and matching concepts, importing some

aspects of each in certain situations, and leaving other aspects

behind.163 Precision Pine exacerbated the problem, and the judges

of the tribunals below have struggled to interpret the

decision.164 Some have merely thrown up their hands and relied

upon the facts to transport them out of the morass.165 For

example, the presumption of good faith (Principle 1), which is

enjoyed by government employees when they act in their sovereign

capacity, should not be applied when private contractors allege

that the government has breached the implied duty of good faith

and fair dealing (Principle 2), which the government accepts in

its contracting capacity.166 Nevertheless, some Federal Circuit

judges appear to have confused the distinction between two

Principles 1 and 2, giving murky precedent to lower courtsthe

163 See discussion infra Part II.C.2 (Federal Circuit decisions) & Part III.A.1 (lower tribunal decisions).164 See, e.g., White Buffalo Constr., Inc. v. United States, 101 Fed. Cl. 1, 13 (2011); Metcalf Constr. Co. v. United States, 102 Fed. Cl. 334, 346 (2011).165 See, e.g., AECOM Gov’t Services.,c., ASBCA No. 56861, 10-2 BCA ¶ 34,577 (focusing on fact that “contract did not contain a bargained-for benefit”).166 See Karen L. Manos, Changes—Constructive Changes—Breach of Implied Duty to Cooperate and Not Hinder Performance, in GOVERNMENT CONTRACTS COSTS & PRICING § 87:6, at 727 (2d ed. 2011)supra nat 72lthouError: Reference source not founde implduty to cooperate and not hinder performance is an aspect of the implied obligation of good faith and fair dealing, it should not be confused with the presumption of good faith.”).

48

tribunals below.167 The folliscussHere, we discuss: (1) the

differences between these Principles; and (2) the confusion

following the Federal Circuit’s decisions in Am-Pro Protective

Agency, Inc. v. United States,168; Centex Corp. v. United

States,169 and Precision Pine & Timber, Inc. v. United States.170

1. Principle 1: (the presumption of good faith

applicable in the sovereign arena) is sSeparate

and dDistinct from Principle 2 (the implied duty

of good faith and fair dealing applicable in the

contractual arena)

As we have discussed previously, Principle 1 is unrelated to

Principle 2.171 And, as we stated above, the conflation of the

two Principles by some federal Federaljudges has been the subject

of extensive analysis and commentary,172 and we do not wish to

167 See discussion infra Part II.C.2 & Part III.A.1.Manoa note 27 (“Agh thError: Reference source not found168 281 F.3d 1234 (Fed. Cir. 2002).169 395 F.3d 1283 (Fed. Cir. 2005).170 596 F.3d 817 (Fed. Cir. 2010). 171 See discussion supra Part II.B.172 See, e.g., Nibley, “Unravelin , at 25-26 (Fall 2006) (contrasting the implied duty of good faith and fair dealing with the presumption of good faith); see also Karen L. Karen L. Manos, supra note 178 Changes—Constructive Changes—BreError: Reference source not foundError: Reference source not foundach of Imp Cooperate and Not Hinder Performance, in GOVERNMENT CONTRACTS COSTS & PRICING § 87:6, at 727 (2d ed. 2011) Maoges—Consthanges—Breplied duty to cooperate and no t 727 (“[T]he implied duty to cooperate . . . is an aspect of the implied obligation of goo th nbe confused with the presumption of ith.”); Ralph C. Nash, Postscr, supraes in light of Precision Pine & Timber, Inc. v. United States, 596 F.3d 817 (Fed. Cir. 2010)); Ralph C. Nash,

49

retrace that analysis completely. However, this article’s topic

warrants articulation of some of that analysis as a building

block for the discussion that follows. On the one hand,

Principle 2 (the implied duty of good faith and fair dealing) is

succinctly stated in the Restatement (Second) of Contracts:

“Every contract imposes upon each party a duty of good faith and

fair dealing in its performance and its enforcement.”173 Here,

“good faith” means “faithfulness to an agreed common purpose and

consistency with the justified expectations of the other

party . . . .[.]”174 Although a party acting in subjective bad

faith can breach this duty, a breach does not require proof of

subjective bad faith.175 Indeed, the Restatement’s examples of

what constitutes a breach of the duty of good faith and fair

dealing demonstrate that proof of subjective bad faith is not

necessary to prove breach of the contractual duty of good faith

and fair dealing:

Subterfuges and evasions violate the obligation of good faith in performance even though the actor believes his conduct to be justified. But the obligation goes further:

Proving a BreachNash, supra note 134, “The govet’s DError: Reference source not foundod Faith and Fair Dealing: Proving a Breach,” 23 No. 12 Nash & Cibinic Rep. ¶ 66 (Dec. 2009) at 188-89X (contrasting these principles in light of U.S. Court of Federal Claims decisions).173 RESTATEMENT (SECOND) OF CONTRACTS § 205 (1981) (emphasis added).174 Id. § 205 Id., Comment Acmt. a (1981) (“Meanings of ‘good faith..’”) (emphasis added).175 See id.., CommentAt 205 cmt. d D (“Good faith performance..”).

50

bad faith may be overt or may consist of inaction, and fair dealing may require more than honesty. A complete catalogue of types of bad faith is impossible, but the following types are among those which have been recognized in judicial decisions: evasion of the spirit of the bargain, lack of diligence and slacking off, willful rendering of imperfect performance, abuse of a power to specify terms, and interference with or failure to cooperate in the other party’s performance.176

Furthermore, the Restatement extends the duty of good faith

and fair dealing to “the assertion, settlement and litigation of

contract claims and defenses,”177 for whichand again, the

Restatement again does not requirelimit breach to proof of

subjective bad faith to find a party’s liability for breach:

The obligation is violated by dishonest conduct such as conjuring up a pretended dispute, asserting an interpretation contrary to one’s own understanding, or falsification of facts. It also extends to dealing which is candid but unfair, such as taking advantage of the necessitous circumstances of the other party to extort a modification of a contract . . . . Other types of violation[s] have been recognized in judicial decisions: harassing demands for assurances of performance, rejection of performance for unstated reasons, willful failure to mitigate damages, and abuse of power to determine compliance or to terminate the contract.178

These examples therefore demonstrate that, in the context of the

duty of good faith and fair dealing, the term “bad faith” refers

176 Id., Comment D (emphasis added).177 Id. § 205 cmt. e, Comment E (“Good faith in enforcement..”).178 Id.

51

to the absence of good faith, rather thannot to conduct taken

with subjective bad faith, intent to injure, or animus.179

On the other hand, we have Principle 1, provides that

ggovernment employees acting in their sovereign capacities, e.g.u

legislating, regulating, taxing, are presumed to act in good

faith.180 Here, subjective bad faith is the touchstone: theis

presumption of good faith “can be overcome only by ‘clear and

convincing’ evidence of subjective bad faith, which means

personal animus.”181 The presumption that government employees

act in good faith did not spring from contract law.182

179 See, e.g., W. StanfieldJohnson, Mixed Nuts and Other Humdrum Disputes, Johnson, “Mixed Nuts and Other Humdrum Disputes: Holding the Government Accountable Under the Law of Contracts Between Private Individuals,” 32 Pub. Cont. L.J. 677, upra note 11Error: Reference source not foundat 704 (Summer 2003) (“‘[B]ad faith’’ is simply ‘the other side of the coin’ or a lack of good faith.”) (citing RESTATEMENT (SECOND) OF CONTRACTS § 205 (1981)). (int.180 , Am-Pro rtective Agency, Inc. v. United States, 281 F.3d 1234, 1239-40 (Fed. Cir. 2001). (explainincom, Inc. v. United States, 66 Fed. Cl. 736, 757-69 (2005) (tracing evolution of presumption of good faith).181 W. Stanfield Johnson, “Needed: A Government Ethics Code and Culture Requiring its Officials To Turn “‘Square Corners”’ Wwhen Dealing with Contractors,” 19 No. 10 NASH & CIBINIC REP. ¶ 47, at 153 (October 2005) [hereinafter Johnson, Needed: A Government Ethics Code] (emphasis in original).182 See Tecom, Inc. v. United States, 66 Fed. Cl. at736, 757-69 (2005); see also Johnson, Mixed Nuts and Other Humdrum Disputes, W. Stanfield Johnson, “Mixed Nuts and Other Humdrum Disputes: Holding the Government Accountable Under the Law of Contracts Between Private Individuals,” 32 Pub. Cont. L.J. 677uupra nte , at 703-Error: Reference source not found04 (Summer 2003) (“There is no such rule in the general law of contracts. . . . A very different concept of ‘good faith and fair dealing’ pervades contract law.”).

52

InsteadRather, it “has its roots in English law” as an

evidentiary presumption created to shield the gGovernment from

liability otherwise caused by discretionary, sovereign actions.183

DuringIn the mid-twentieth century, it PrinciplI appeared in he

American U.S. government -contracts settings, but was “largely

restricted” to the adjudication of claims arising out of

discretionary government actions such as contract terminations.184

183 See, e.g., Tecom v. United States,, Inc. v. United States, 66 Fed. Cl. 736, 736, 758 7-69 (2005). In modern jurisprudence, the good faith presumption appears to have emerged in personnel disputes; . See W. Stanfield Johnson, Mixed Nuts and Other Humdrum Disputes,: “Mixed Nuts and Other Humdrum Disputes: Holding the Government Accountable Under the Law of Contracts Between Private Individuals,” 32 Pub. Cont. L.J. 677, 699 (Summer 2003) (“[T]he rule finds its genesis in personnel disputes[. . . .]”); see, e.g., Gonzales v. West, 218 F.3d 1378, 1381 (Fed. Cir. 2000) (applying presumption when veteran challenged disability rating assigned by Department of Veterans Affairs); Gonzales v. Def.ense Logistics Agency, 772 F.2d 887, 889 (Fed. Cir. 1985) Robinson v. U.S. Postal Serv., No. 99-3460, 2000 WL 674674 at *2 (Fed. Cir. May 23, 2000) (“Penalty decisions are judgment calls best left to the discretion of the employing agency, and the presumption is that [G]overnment officials have acted in good faith.”) (citing Boyle v. United States, 5 1397, 1401 (Ct.Cl.1975)Boyle v. United States, 515 F.2d 1397, 1401 (Ct. Cl. 1975)). inter.. But see Major Bryan O. Ramos, “Never Say Die: The Continued Existence of the government Officials’ Good Faith Presumption in Federal Contracting Law and the Well-Nigh Irrefragable Proof Standard After Tecom,” 63 A.F. L. Rev. 163, 166-70 (2009) (insisting that the presumption of good faith is well-established as an historical principle in government contracts law); Linda P. Armstrong, Walter H. Pupko, and Donald M. Yenovkian II, “Federal Procurement Ethical Requirements and the Good Faith Presumption,” 20 No. 6 Nash & Cibinic Rep. ¶ 29 (June 2006) (same).184 See W. Stanfield Johnson, Needed: A Government Ethics CodeJohnson, supra note Error: Reference source not found2Error:Reference source not foundat 153;. “Needed: A Government Ethics Code and Culture Requiring its Officials To Turn ‘Square Corners’ when Dealing with Contractors,” 19 No. 10 Nash & Cibinic Rep. ¶

53

Since then, courts have occasionally but sparingly applied this

presumption to other areas of government contracts law.185 With

few exceptions, the courts hadve not applied the presumption —

and its heavy evidentiary burden — to the resolution of disputes

between the gGovernment and its contractors before the Federal

Circuit’s Am-Pro Protective Agency, Inc. decision.186

47 (October 2005); see also Ralph C. Nash, “The Government’s Duty of Good Faith and Fair Dealing: Proving a Breach,” 23 No. 12 Nash & Cibinic Rep. ¶ 66 (Dec. 2009a no, )at ; W. Stanfield Johnson, at “Mixed Nuts and Other Humdrum Disputes: Holding the Government Accountable Under the Law of Contracts Between Private Individuals,” 32 Pub. Cont. L.J. 677, 700 (Summer 2003).185 See, e.g., Galen Med. Assocs., Inc. v. United States, 369 F.3d 1324, 1328-30 (Fed. Cir. 2004) (applying presumption when assessing agency action in bid protest challenge under Administrative Procedure Act, 5 U.S.C. § 702); Precision Standard, Inc. v. Widnall, No. 97-1096, 1997 WL 794107, at *3 (Fed. Cir. Dec. 30, 1997) (applying standard when private contractor appealed termination for default)); Ralph C. Nash, Proving a BreachNash, “The Government’s Duty of Good Faith and Fair Dealing: Proving a Breach,” 23 No. 12 Nash & Cibinic Rep. ¶ 66 (Dec. 2009)supra note Error: Reference source not found, at 190 (discussing application of presumption to terminations for default).186 See , e.g., W. Stanfield Johnson, Mixed Nuts and Other Humdrum Disputes, , “Mixed Nuts and Other Humdrum Disputes: Holding the Government Accountable Under the Law of Contracts Between Private Individuals,” 32 Pub. Cont. L.J. 677, 701 (Summer 2003)

(“Before Am-Pro, the Federal Circuit (and the Court of Claims before it) had never applied the onerous “bad faith”’test to government duties in the performance of its contracts. Indeed, government contract tribunals have held government officers to standards of “‘good faith”’ in other contractual dealings, applying tests more akin to the general law of contracts, and without presumption and without wresting through unnatural issues of malice, personal animus, or specific intent to injure.

Id. ”).

54

2. RecentThe Federal Circuit’s Ddecisions in the past

decade in tThis aArea of lLaw hHave bBeen

iInconsistent and cConfusing, Effectively

Importing the Concept of Subjective Bad Faith From

Principle 1 (The Presumption of Good Faith) Into

Application of Principles 2 (Duty of Good Faith

and Fair Dealing) and 3 (Sovereign Acts Doctrine).

a. Am-Pro Protective Agency, Inc. v. United

States

In 2002, the Federal Circuit decided Am-Pro Protective

Agency, Inc. v. United States.187 In Am-Pro Protective Agency,

Inc., a private contractor (“Am-Pro”) alleged that the

Ggovernment was liable for additional employee compensation costs

Am-Pro incurred during contract performance.188 The gGovernment

argued that itAm-Pro had already released its claims, to which;

Am-Pro responded that its purported releases were made under

duress and thus were void.189 On a motion for summary judgment,

the Court of Federal Claims found for the gGovernment,190 and on

appeal, the Federal Circuit affirmed.191 Curiously, the Federal

Circuit’s ruling ignored the relevant standards for the implied

187 281 F.3d 1234 (Fed. Cir. 2002).188 Id. at 1236-38-38. 189 Id. at 1237-37-38. 190 Am–Pro Protective Agency, Inc., v. United States, No. 98–940C, slip op. (Fed. Cl. Feb. 2, 2001)., 191 atPro Protective Agency, Inc., 281 F.3d at 1243.

55

duty of good faith and fair dealing (Principle 2), which — given

the facts alleged by Am-Pro — might have been breached.192 For

example, aside from the mere “absence of good faith,” Am-Pro’s

allegations suggested a genuine issue of material fact regarding

the contracting contracting oofficer’s “evasion of the spirit of

the bargain,” interferenceing with Am-Pro’s performance, “taking

advantage of necessitous circumstances,” and abuseing f her

authority.193

Instead, the Federal Circuit began and ended its analysis

with Principle 1, “[t]he presumption that government officials

act in good faith . . . .,” or Principle 1.194 The court

emphasized the considerable burden of proof that a plaintiff must

meet to overcome the presumption: “[W][W]e are ‘loath to find to

the contrary of [good faith], and it takes, and should take,

192 Specifically, Am-Pro alleged that the contracting officer threatened to cancel Am-Pro’s contract and “adversely impact [its] ability to contract with other agencies” if Am-Pro maintained its original claims. Id. at 1237 (alteration in original). Am-Pro withdrew its claims and “effectively releas[ed] the government from any future claims . . . .” Id. at193 See sSee lR ESTATEM ENT (SECOND) OF CONTRACTS § 205 (1981) , Comments D & Ee. Stanfield Johnson has re-assessed Am-Pro under the Restatement’s standards for good faith and fair dealing, and he has argued that, “under the law of contracts between private individuals, Am-Pro could not have been decided as it was.” Johnson, Mixed Nt and Other Humdrum DisputesW. Stanfield Johnson, “Mixed Nuts and Other Humdrum Disputes: Holding the Government Accountable Under the Law of Contracts Between Private Individuals,” 32 Pub. Cont. L.J. 677, 705 (Summer 2003). Further, “Am-Pro [does not] appear to be consistent with prior government contract precedent dealing with duress and good faith in performance . . . . . . .”” Id.194 Am-Pro Protective Agency, Inc., 281 F.3d at 1239.

56

well-nigh irrefragable proof to induce us to do so.’”195 Then,

before weighing Am-Pro’s allegations under this burden, the court

withdrew somewhat from its application of a subjective intent

standard, noting that “the presumption of good faith, as used

here, applies only in the situation where a ggovernment official

allegedly engaged in fraud or in some other quasi-criminal

wrongdoing.”196 Finally, the court found no genuine issue of

material fact with regard to the contractor’s allegations that

the gGovernment had acted with subjective bad faith.197 According

to the court, Am-Pro had not shown that: (1) the Government

intended to injure“the government ‘had a specific intent to

injure’ Am-Pro,”; (2) the contracting officer’s threats were

based in malice,“‘motivated alone by malice’”; (3) there was

proof of a conspiracy against Am-Pro,“a proven ‘conspiracy . . .

to get rid of [Am-Pro]’”; (4) the Government’s actions were

oppressive, “governmental conduct [] was ‘designedly

oppressive’”; or (5) the contracting officer acted out of animus

towardhad “animus toward’ Am-Pro.”198

195 Id. (alterations in original) (quoting Schaefer v. United States, 633 F.2d 945, 948-49 (Ct. Cl. 1980)).(citations omitted) (emphasis added) (“[O]ur court and its predecessor have often used the ‘well-nigh irrefragable’ language to describe the quality of evidence to overcome the good faith presumption . . . .”).196 Id. (citing Addington v. Texas, 441 U.S. 418, 423-24 (1979)). (emphasis added). 197 See i See 281 F.3dd. at 1243.198 Id. at 1240-1241 (citations omitted).

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Following Am-Pro Protective Agency, Inc., a number of

decisions have merged the burden for the presumption of good

faith’s burden of proof — “well-nigh irrefragable proof” of

subjective bad faith, or personal animus (Principle 1) — into the

standard private contractors must meet to prove the Ggovernment’s

breach of the duty of good faith and fair dealing (Principle

2).199 The concept of subjective “bad faith” is often discussed

in connection with the duty of good faith and fair dealing. Some

judges now require proof by clear and convincing evidence of “bad

faith,” or personal animus, not just the absence of good faith

(such as slacking, lack of diligence, failure to cooperate), to

prove breach of the duty of good faith and fair dealing.200

ConverselyNotably, othersome decisions, such as that of the Court

of Federal Claims in Tecom, have triedexpended considerable 199 See, e.g., Nash, Proving a Breach Ralph C. Nash, supra note Error: Reference source not found, at 191 ; “The Government’s Duty of Good Faith and Fair Dealing: Proving a Breach,” 23 No. 12 Nash & Cibinic Rep. ¶ 66 (December 2009); see also hnon, Mixed Nuts and Other Humdrum Disputes, W. Stanfield Johnson, “Mixed Nuts and Other Humdrum Disputes: Holding the Government Accountable Under the Law of Contracts Between Private Individuals,” 32 Pub. Cont. L.J. 677,note 11, at 703 (Error: Reference source not foundSummer 2003) (predicting that, “[i]f Am-Pro is not seen as an aberration overcome [] by a renewed application of general contract law, its precedential effect would be to grant government contracting officials a dangerous license to ignore those obligations of good faith and fair dealing in contractual actions that government contract law has already adopted from the law of contracts between private individuals”).200 See, e.g., Cal. Human Dev. Corp. v. United States, 87 Fed. Cl. 282, 295 (2009); Keeter Trading Co. v. United States, 85 Fed. Cl. 613, 617-18 (2009); N. Star Alaska Hous.ing Corp. v. United States, 76 Fed. Cl. 158, 187-88 (2007).

58

effort to clarify the distinction between the presumption of good

faith (Principle 1) vis-à-vis the duty of good faith and fair

dealing (Principle 2).201 However, the confusion between the two

Principles continues to persists, and as it does, government

contracts as bilateral deals become further imbalanced, with

private contractors and the government assuming much different

rights and responsibilities.202

b. Centex Corp. v. United States

The Federal Circuit’s decision in Centex Corp. v. United

States203 involved a lawsuit similar to thataddressed the same

issue the courts had addressed in Winstar, i.e., — a suit for

breach of contract claim damages filed by a trust company (“the

contractor”) that had acquired failed thrifts pursuant to

agreements with the Federal Savings and Loan Insurance

Corporation under which the contractor and gGovernment expected

201 See, e.g., Universal Shelters of Am., Inc. v. United States, 87 Fed. Cl. 127, 144-45 (2009) (Wolski, J.); Tecom, Inc. v. United States, 66 Fed. Cl. 736, 757-72 (2005) (Wolski, J.); see also Helix Elec., Inc. v. United States, 68 Fed. Cl. 571, 586-88 (2005) (Williams, J.); cf. Jay Cashman, Inc. v. United States, 88 Fed. Cl. 297, 308 n.15 (2009) (Allegra, J.) (“While most cases seem to suggest that there can be no violation of the duty to cooperate without a showing of bad faith, that view is not universal.”).202 See , discsion, infra Part III.A1 (explaining how judges in the tribunals below have imported the subjective intent analysis applicable only under Principle 1 into their analysis of Principles 2 and 3); at heading III.A.1uffalo Constr., Incv. United States, 101 Fed. Cl. 1, 13 (2011); Metcalf Constr. Co. v. United States, 102 Fed. Cl. 334, 346 (Fed. Cl. 2011)White Buffalo Const., Inc. v. United Sta96 Fed. Cl. 205, 221-22 (2010).203 395 F.3d 1283 (Fed. Cir. 2005).

59

that the contractor would enjoy certain tax benefits. 204 The

gGovernment’s subsequent enactment of the subsequentGuarini

legislation deprived the contractor of the tax benefits it had

expected toit would enjoy through the execution and performance

of the contract.205 The Federal Circuit’s decision in Centex

Corp. not only hewed to the Winstar plurality’s reasoning, it

also rounded it out and introduced Principle 2 to the analysis.206

The Federal Circuit began with a straightforward recitation

of the duty of good faith and fair dealing (Principle 2).207

However, the court then confronted the question of when it should

consider legislation to be a sovereign act that shields the

gGovernment from liability for breach of contract damages

(Principle 3).208 The Ggovernment asserted that the Guarini

legislation at issue was an insulating exercise of sovereign

204 See id. at 395 F.3d 1283, 1287-88 (Fed. Ci2005);pra ParII.A; see also Stuart B. Nibley, prt “Unraveling the Mixed Messages that Government Error: Reference source not foundProcurement Personnel Receive: Message 1: Act Absolutely in the government’s ‘Best Interests’: Message 2: Act ‘Ethically,’” 36 Pub. Cont. L.J. 23, 27-28 (Fall 2006) (discussing Centex). Soon after Centex Co, the Federal Circuit decided First Nationwide Bank v. United States, 431 F.3d 1342, 1353 (Fed. Cir. 2005))), a similar case with a similar outcome.205 Centex Corp., 395 F.3d at 1289. 206 See id. at 1305-11. (discussing the Winstar decision in greatsidering whether ereign 207 Id.Id. at 1304 (affirming that it “imposes obligations on both contracting parties” and “applies to the [G]government just as it does to private parties”).208 Id. at 1305-11.

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power.209 The Federal Circuit concluded that it the legislation

was did serve to insulate the Government from liability, however,

because it was not because the legislation had been “specifically

targeted” at reappropriating contractual benefits and abrogating

contractual obligations.210 The Federal Circuit also followed

Winstar in finding that the imposition of damages for the

Ggovernment’s breach of contract did not block the gGovernment’s

right to exercise its taxing authority in a public and general

manner.211:

The Federal Circuit noted thatAs noted above, the

government’s assertion that a contract cannot preclude Congress

from changing the tax laws does not fairly characterize the issue

we are called on to decide. T “[t]he question raised by this

case is whether the gG]overnment is liable in damages for breach

of the contract when Congress enacts specifically targeted

legislation that appropriates for the g[]overnment a portion of

the benefits previously available to the contractor.”212 The

Supreme Court’s decision in Winstar establishes that while a

contract may not interfere with Congress’s power to enact tax

legislation, the contract may nonetheless bind the government to

pay damages in the event such legislation is found to breach the

209 Id. at 1309 (arguing that “this case involves a uniquely sovereign act, namely, the right to tax.”).210 Id. at 1308. Id.211 Id. at 1309.212 Id.

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contract. As the plurality opinion in Winstar noted,lying the

plurality decision from Winstar, the court furththat, while

“[o]nce general jurisdiction to make an award against the

government is conceded, a requirement to pay money supposes no

surrender of sovereign power by a sovereign with the power to

contract.... The Government cannot make a binding contract that

it will not exercise a sovereign power, but. . .[] it can agree

in a contract that if it does so, it will pay the other

contracting party the amount by which its costs are increased by

the Government’s sovereign act.’”213 Winstar, 518 U.S. at 881, 116

S.Ct. 2432, citing Amino Bros. Co. v. United States, 178 Ct.Cl.

515, 372 F.2d 485, 491 (1967). t then concluded:statThus, a

claim for damages arising from the breach of a contract by an act

of Congress does not bar Congress from exercising its taxing

power; it merely ensures that if the exercise of that power

breaches a particular contractual obligation, the injured party

will have redress for the breach.”. Based on that fundamental

principle underlying Winstar, we reject the government’s

characterization of the claim for damages as a request to enjoin

the enactment of legislation.214

213 Id. (quoting United States v. Winstar Corp., 518 U.S. 839, 881 (1996)). at 1309. ___ (citing Winited Stat518 881, 116214 Id. at ___ (emphasis added).

62

In Centex Corp., Tthe court therefore held that the

gGovernment had breached its duty of good faith and fair

dealing.215 Unfortunately, a number of decisions subsequent to

Centex Corp. have primarily focused on the theatecisiondecision’s

use of the term “specifically targeted,” such that some judges

have required contractors to prove subjective bad faith or animus

(associated with Principle 1) to demonstrateprove that the

gGovernment breached the contractual duty of good faith and fair

dealing (Principle 2).216

c. Precision Pine & Timber Co. v. United States

The Federal Circuit’s treatment of these issues in a more

recent decision, Precision Pine & Timber Co. v. United States,217

is rooted in Centex Corp.’s language and analysis.218 However,

the Precision Pine decision discussed Principles 2 and 3 in a way

that not only appeared to invoke Principle 1, which had no

application to the matter, but which has also led to the merging

of all three Principles.219 Precision Pine has enabled judges who

215 Id. at 1311, 1314. 216 See, e.g., Precision Pine & Timber, Inc. v. United States, 596 F.3d 817, 829-30 (Fed. Cir. 2010); D’Andrea Bros. LLC v. United States, 96 Fed. Cl. 205, 221-22 (2010).217 , 596 F.3d at 817 (Fed. i 2010). (Fed. Cir. 2010).218 See id. at 829 entex in greail). Precision Pine also relies on First Nationwide Bank, id., which immediately followed Centex Corp. See discussion supra note [ ].219 See Nash, Postscript asupra note , at 6Error: Reference sourcenot found5-67 (explaining how Precision Pine’s articulation of the duty of good faith standard – Principle 2 – “flies in the face of almost all prior decisions”); see also discussion infra Part III.A.1 (merging of the three principles). , e.g.ision

63

are so inclined to melt the distinctions between the three

governing Principles even more, leading to more, not less,

confusion.220

In Precision Pine, the Federal Circuit reversed the Court of

Federal Claims, which had found that that gGovernment had

breached both an express warranty and the implied duty not to

hinder the contractor at issue(Precision Pine) in its performance

of fourteen timber harvesting contracts with the Forest

Service.221 Although the Federal Circuit reversed on both

issues,222 we address the first issueissue, the alleged breach of

express warranty, is discussed herein only insofar as it pertains

to the second issue, which involves allegations of the

gGovernment’s breach of the duty not to hinder the contractor’s

performance.223 As to the second issue, the Federal Circuit found

that the lower court erred in holdingwhen it held that the

gGovernment had breached the duty of good faith and fair dealing

(the duty not to hinder) by consuming more time than the tribunal

found appropriate to allow removal of a court-ordered suspension

of timber harvesting contracts.224

ne___.220 See discussion infra Part III.A.1.221 Precision Pine, 596 F.3dId. at 820.222 Id. at 834.223 We choose to do this because the implied duty of good faith is the focus of this paper.224 SiId.at 83428.

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As background to the Federal Circuit’s decision, it should

be noted that Aa federal district court in Arizona had ordered

timber harvesting under the contracts at issue in Arizona

suspended until the Forest Service… “consulted with the U.S. Fish

and Wildlife Service about the pertinent land resource management

plans.”225 See Silver v. Babbitt, 924 F.Supp. 976, 989

(D.Ariz.1995). The order explained that such consultation was

required under section§ 7 of the Endangered Species Act,226 16

U.S.C. § 1536, due to the recent listing of the Mexican spotted

owl as an endangered species.227 “The fourteen contracts remained

suspended until completion of the consultation process in

December 1996.”228 Given this delay, Tthe contractor alleged that

its timber harvesting contracts included an express warranties

that the Forest Service had complied with the requirements of the

Endangered Species Act.229 The Federal Circuit rejected this

argument, finding that the contracts did not include express

warranties.230

The Federal Circuit also reversed the tribunal below with

regard to the alleged breach of the implied contractual duty of

225 Id. at 819-20 (citingSselver v. Babbitt, 924 F. Supp. 976, 989 (D. Ariz. 1995)). (susp226 16 U.S.C. §§ 1531-1544 (2006).227 See Silver, 924 F. Supp. at 989.228 Precision Pine, 596 F.3dId. at 819-820. 229 Id. at 824-25.230 Id. at 825.at 824-825.

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good faith and fair dealing (duty not to hinder — Principle

#2).231 As summarized by the Federal Circuit, tThe trial court

found that the Forest Service unreasonably delayed the resumption

of the timber harvesting contracts in several ways,232 as

follows:The trial court found that Forest Service’s actions

during the suspension resulted in the suspension being

unreasonably long. Precision Pine I, 50 Fed.Cl. at 70-71.

Specifically, the trial court concluded that the Forest Service

hindered the contracts because twelve days elapsed after the

Arizona district court’s order in Silver before the Forest

Service requested formal consultation. Id. at 70. The trial

court also found the two-month delay that preceded the actual

start of formal consultations unreasonable; the Forest Service

spent this period formulating and revising its Biological 231 Id. at 834.232 The Federal Circuit summarized the trial court’s findings as follows:

The trial court found that Forest Service’s actions during the suspension resulted in the suspension being unreasonably long. . . . Specifically, the trial court concluded that the Forest Service hindered the contracts because twelve days elapsed after the Arizona district court’s order in Silver before the Forest Service requested formal consultation. . . . The trial court also found the two-month delay that preceded the actual start of formal consultations unreasonable; the Forest Service spent this period formulating and revising its Biological Assessment to include requested information. . . . Finally, the trial court found the Forest Service unreasonably delayed the consultation process by failing to provide a legally sufficient Biological Opinion that conformed to a joint stipulation with the environmental groups in Silver.

Id. at 819-20 (citations omitted).

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Assessment to include requested information. Id. at 48.

Finally, the trial court found the Forest Service unreasonably

delayed the consultation process by failing to provide a legally

sufficient Biological Opinion that conformed to a joint

stipulation with the environmental groups in Silver. Id. at 48-

50, 71. andItepported its findings by citing to the Arizona

district court,n support of this finding, the trial court cited

the Arizona district court, which had reprimanded the Forest

Service on several occasions for attempting to resume timber

harvesting while the injunction remained in effect.”233 It is

important to study the Federal Circuit’s ruling on this issue.234

The Federal Circuit, in reversing the findings of the trial

court, articulated two reasons why it found that the contractor

was not entitled to recover damages in relation to the

Government’s alleged breaches of the gGovernment’s duty not to

hinder performance (Principle 2): “[t]he Forest Service’s actions

during these formal consultations were (1) not ‘specifically

targeted’ [at the contractor], and (2) did not reappropriate any

‘benefit’ guaranteed by the contracts, since the contracts

contained no guarantee that Precision Pine’s performance would

proceed uninterrupted.”235

233 Id. at 828-829 (emphasis added). 234 Id. at 828-831.235 Id. at 829 (quoting Centex Corp. v. United States, 395 F.3d 1283, 106 (Fed. Cir. 2005)).

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We believe the order in which the recision addressed these

two reasons has caused confusion in the tribunals below, at least

within the Court of Federal Claims. In some ways the Federal

Circuit createds a straw man issue with regard to its

consideration of the contractor’s allegations that the

gGovernment breached its dutyies of good faith and fair dealing,

given the disposition of the express warranty issue (the duty not

to hinder). As we have stated, the court first found that the

timber harvesting contracts did not include express warranties

guaranteeing that performance would not be suspended by reason of

the Forest Service’s consultation with the U.S. Fish and Wildlife

ServicesEPA under the Endangered Species Act.236 The court then

stated that, “[b]ecause the suspensions were authorized, the only

remaining question is [was] whether the Forest Service’s actions

during the suspensions violated the implied duty of good faith

and fair dealing.”237 The court thus seemed to holdThus, the

court waits until the second reason (for finding no breach of the

duty of good faith and fair dealing) to announce that there can

be no breach of the implied duty of good faith and fair dealing

under the circumstances simply by virtue of the fact that because

there were no express warranties under the contract.:;

iImportantly, thecurtstated that “[t]The implied duty of good

faith and fair dealing cannot expand a party’s contractual duties 236 Precision Pine, 596 F.3d at 825. Id.237 Id. at 828 (emphasis added).

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beyond those in the express contract or create duties

inconsistent with the contract’s provisions.”238

Therefore, the court found that because the parties had not

contemplated a guarantee of uninterrupted performance, the

contractorit f no expectation, and no express warranty, that the

Forest Service would notn’t delay performance due to itsher

statutory obligations.239

Having found that the contracts did not include express

warranties, the court could have disposed of the allegation of

the breach of the duty of good faith and fair dealing without

further discussion. In other words, the court could have

articulated its second reason first (that no “benefit” or

reasonable expectation for the contractor existed that could be

frustrated by any type of government action or inaction,

sovereign or otherwise); the Federal Circuitan could have avoided

the confusion it created by stating its first reason first.

However, the court did not do this. Rather, the court began its

discussion of its ruling with regard to consideration of

Principle 2 (the duty of good faith and fair dealing, which

includesincluding the duty not to hinder) with language

suggestivecharged with tones of subjective bad intent.240

238 Id. at 831 (citing Centex Corp., 395 F.3d at 1304-06).239 IdSee id.. at 831 (emphasis added). 240 The court did, as virtually all fora within the federal judiciary do in dealing with this issue, begin its discussion with the standard invocation of the Core Tenet. Id. at 828. It

69

Furthermore, It did so byTthe cy discussing the legal standard

that should be applied to assess the gGovernment conduct at

issuein question before it discussied the nature of the

gGovernment conduct itself in question — i.e., whether or not the

government Government conduct under review involved the

gGovernment acting in its sovereign capacity, or in its

contracting capacity, or both.241 As previouslywe have discussed,

the relevant legal standard to be applied depends upon the nature

of the gGovernment conduct that is being reviewed,.242 such that

the Federal Circuit n Precision Pine should have resolved whether

sovereign or contractual acts were at issue before addressing the

applicable legal standard In Precision Pine, however, the court

first articulated the legal standard that is to be applied before

it explained whether or not the government conduct under review

was sovereign, or contractual, in nature. The court ve

invokedaddressed the sovereign acts doctrine (Principle 3) in its

opinionithout mentioning it by name or engaging in a full

analysis of the doctrine’s components..243 However, Precision

Pine never mentions the sovereign acts doctrine by name, nor it

promptly abandoned the Core Tenet in its analysis.596 F.3d at 829 (requiring “indicia of a governmental bait-and-switch,” “double crossing,” or subsequent action “specifically targeted” to “reappropriate any ‘benefit’”). 241 See id. 242 See discussion supra Part II.B. When the Government acts in a contracting capacity, the objective duty of good faith standard is supposed to apply. On the other hand, when the Government acts in a sovereign capacity, the subjective presumption of good faith appliesbe applied.

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the first aspect of consideration under the sovereign acts

doctrine (Principle 3) — whether or not the government’s

sovereign act was “public and general” in nature.

This Consequently,e recision Pine anhas led to considerable

confusion.244 Precision Pine failed to clearly articulate crisply

the individual Principles and sub-considerations at work.245 As

an initial problem, the court’s partial articulation of a portion

— but only a portion — of the sovereign acts doctrine

potentially(“specifically targeted” v. “public and general”)

allows, if not encourages, judges to apply Precision Pine in all

instances in which a contractor has alleged that the gGovernment

has breached its duty of good faith and fair dealing, and not

merely to instances involving sovereign acts.246 This Preci Pin’s

imprecise articulation of the sovereign acts doctrine enables

judges who are so inclined to merge the three Principles into a

single, incorrect, articulation of law.247 And, as identified

previously, Oonly after it tatedarticulated the legal standard to

be applied did the Federal Circuit explain that theits legal

243 See Precision Pine, 596 F.3d at 829 (“The government may be liable for damages when the subsequent government action is specifically designed to reappropriate the benefits the other party expected to obtain from the transaction, thereby abrogating the government’s obligations under the contract.”).244 See discussion infra Part III.A.1.245 See Precision Pine, 596 F.3d at 829 (seeming to apply a subjective standard of analysis to the duty of good faith when an objective standard of analysis typically applies).246 See supra note 260 and accompanying text. (c247 See discussion infra Part III.A.1.

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standard applies only to the gGovernment’s soereign actions only

in its sovereign capacity, not t nment’sits contractual

actionscapacity.248

To summarize thenSo, the first significant problem with

Precision Pine is that its imprecise analysis and explanation of

the applicable Principles fuel the confusion that already existed

in the case law. The decision invites, and indeed has resulted

in, judicial inattention to the crucial distinction between the

gGovernment acting in its sovereign capacity and the gGovernment

acting in its contractual capacity, leading some judges to apply

the Precision Pine “specifically targeted” standard to actions

the gGovernment takes strictly in its contracting capacity.249

Second, the same imprecision in the decision invites the

tribunals below to impute the concepts of subjective bad faith

from Principle 1 (the presumption of good faith) into

applications of Principles 2 (the duty of good faith and fair 248 Eventually, after articulating the legal standard to be applied, the court explains that the Government conduct in question is sovereign in nature. Precision Pine, 569 F.3d at 830 (noting that Forest Service’s obligations under the ESA are to the Fish and Wildlife ervices.”).Id. 830. Even then, the court does not articulate this clearly — it never mentions the term “sovereign acts;””; it never begins its analysis with the “public and general” in nature consideration of the application of the sovereign acts doctrine that leads to its articulation of the “specifically targeted” consideration. It simply announces the “specifically targeted” standard, and subsequently points out that it finds that the conduct in question is sovereign in nature.nature. See id.249 See, e.g., White Buffalo Constr., Inc. v. United States, 101 Fed. Cl. 1, 13 (2011); Metcalf Constr. Co. v. United States, 102 Fed. Cl. 334, 346 (Fed. Cl. 2011).

72

dealing) and 3 (the sovereign acts doctrine).250 However,

Precision Pine only dealt with Principles 2 (the duty of good

faith and fair dealing) and 3 (the sovereign acts doctrine).;

butIt did not deal with Principle 1 (the presumption of good

faith).251 The court cited Principle 2 and its basic premises, as

well as the Core Tenet, but quickly moved on.252

Finally, Iin addressing Principle 3, the court never

mentioned “sovereign acts” or addressed the legal underpinnings

(“public and general”) supporting Principle 3.253 Instead, it

used language applicable to Principle 1 (the presumption of good

faith):: “misbehavior”, “the old bait and switch”, “a

governmental bait and switch or double-crossing.”254 These are

words of bad intent, not applicable to Principle 2 (the duty of

good faith and fair dealing) and only marginally connected with

Principle 3 (sovereign acts doctrine).255 It also merged

Principle 2 (the duty of good faith and fair dealing) with

concepts that belong exclusively with Principle 1 (the

presumption of good faith). The court avoided language on the

one side of the Principle 3 coin — i.e., whether or not the

250 See id.251 See id. at 827, 830. id. at 830 (indirectly addressing sovereign acts doctrby t252 See i Id. at 827-28.253 See id. at 829.254 Id. 255 See discussion , supra Part II.B., discussion under Heading II.B.

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sovereign act that allegedly led to the deprivation of the

contractor’s benefit of the bargain was “public and general” in

nature. Instead, the court focused on the other, negative, side

of Principle 3 — i.e., “specifically targeted,” “bait and

switch,” “double-crossing,” and “misbehavior,” terms imported

from Principle 1256 :

Not all misbehavior, however, breaches the implied duty of good faith and fair dealing owed to other parties to a contract. See First Nationwide, 431 F.3d at 1350 (noting that not all governmental action that affects existing government contracts violates the implied duty of good faith and fair dealing).

Cases in which the government has been found to violate the implied duty of good faith and fair dealing typically involve some variation on the old bait-and-switch. First, the government enters into a contract that awards a significant benefit in exchange for consideration. Then, the government eliminates or rescinds that contractual provision or benefit through a subsequent action directed at the existing contract. See, e.g., id. at 1350-51; Centex Corp. v. United States, 395 F.3d 1283, 1304-07 (Fed.Cir.2005); see also Hercules, 516 U.S. 417, 116 S.Ct. 981, 134 L.Ed.2d 47. The government may be liable for damages when the subsequent government action is specifically designed to reappropriate the benefits the other party expected to obtain from the transaction, thereby abrogating the government’s obligations under the contract. Centex, 395 F.3d at 1311.

* * *

256 See id. at 829. For example, the Court said, “[n]Nt all misbehavior, however, breaches the implied duty of good faith and fair dealing owed to other parties to a contract. Cases in which the government has been found to violate the implied duty of good faith and fair dealing typically involve some variation on the old bait-and-switch.” Id.

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There are no similar indicia of a governmental bait-and-switch or double crossing at work here. We conclude that there was no breach of the government’s implied duty of good faith and fair dealing because the Forest Service’s actions during these formal consultations were (1) not “specifically targeted,” and (2) did not reappropriate any “benefit” guaranteed by the contracts, since the contracts contained no guarantee that the Precision Pine’s performance would proceed uninterrupted. Cf. id. at 1306.

The Federal Circuit’s migration from Centex Corp. to

Precision Pine has had the effect of importing the subjective

intent standard into analysis of the applicability of the

sovereign acts doctrine (Principle 3) and the duty of good faith

and fair dealing (Principle 2) in a number of instances,s. This

has further resulted in the merging ofmerged the three Principles

into a single Principle dependent upon a subjective intent

analysis.257 A third problem with Precision Pine emerges from its

less-than-crisp analysis and application of the three Principles

and their sub-considerations. example,The decisions in aplying

Principle 3and its predecessors show no evidence that the Federal

Circuit considered the possibility that a sovereign act can be

both “public and general” and “specifically targeted” in

nature.258 The Federal Circuit’s focus solely on bad motive (the

“specifically targeted” language) sullies the sovereign acts

doctrine analysis.259 With regard to the application of Principle

257 See, e.g., White Buffalo Constr., Inc. v. United States, 101 Fed. Cl. 1, 13 (2011); Metcalf Const. Co. v. United States, 102 Fed. Cl. 334, 346 (Fed. Cl. 2011).258 See discussion supra note Error: Reference source not found.259 See generally Precision Pine, 596 F.3d at 829.

75

3, courts do better to turnshould firsten to Justice Souter’s

articulation of the “public and general” consideration of a

governmentalgGovernment sovereign act as havin . As Justice

Souter noted, and Professor Schwartz has analyzed so

thoroughly,260 it is possible that the government can pursue a

sovereign act that has “public and general” effect prospectively,

going forward, but has the effect of depriving one or more

contractors of the benefit of their contractual bargains with

regard to the act’sits retrospective application.261 Finding that

the gGovernment has breached its duty of good faith and fair

dealing by frustrating contractor rights does not necessarily

mean that the sovereign act under review must be viewed solely in

a binary manner — i.e., either as a prospective sovereign act, or

as a retrospective act specifically targeted at existing

contracts.262 Instead, Tthe sovereign act, such as legislation,

may be properly motivated as to its prospective application —

i.e., a proper exercise of the gGovernment’s “public and general”

right to legislate — but at the same time, it may subject the

gGovernment to liability with regard to existing contracts

260o. Wash. L. Rev. 633 (Apr. 1, 1996).261 See United States v. Winstar Corp.W 518 U.S 839, X893-94 (1996); Joshua I. Schwtz, supra note 11 Sovereign Acts and akabilnes in thembling Winstar, supra note 11, at, “Assembling Winstar: Triumph of the Ideal of Congruence in Government Co 19979)at 520; X;. Joshua I. Schwartz, supraat “Liability for Sovereign Acts: Congruence and ExError: Reference source not foundptionasm262

76

retrospectively affected by the legislation.263 In such

instances, motive becomes less relevant.

In his plurality decision in Winstar, Justice Souter

examined the conundrum presented by attempting to protect both

the gGovernment’s right to be unfettered in its exercise of its

sovereign powers and the gGovernment’s need to create enforceable

contracts with benefits and obligations.264 The Precision Pine

decision lost sight of Justice Souter’s assessment of the

sovereign acts doctrine: “The application of the doctrine thus

turns on whether enforcement of the contractual obligation

alleged would block the exercise of a sovereign power of the

government.”265 The government argued in each case that any

exercise of sovereign authority that was designed to accomplish

some public good warranted application of the sovereign acts

doctrine. Justice Souter recognized that the analysis is not so

simple, and that the gGovernment may at times act in its

contractual capacity when it exercises a sovereign power.266

Referring to the gGovernment’s “dual characters . . . as

contractor and legislator,” he recognized that a specific

sovereign act may be undertaken to effect fect “some public

263 See Winstar, 518 U.S at899 (adopting “substantial effect” test).264 See, e.g. id. at 894 (recognizing the Government’s dual roles with regards to FIRREA). 265 Winstar, 518 U.S. at 879 (emphasis added). 266 See id. at 893-94.

77

good,” but at the same time may be designed to relieve the

gGovernment of obligations it has accepted through

contracts.267 :The government argues that “[t]he relevant question

[under these cases] is whether the impact [of governmental

action] ... is caused by a law enacted to govern regulatory

policy and to advance the general welfare.” Brief for United

States 45. This understanding assumes that the dual characters

of government as contractor and legislator are never “fused”

(within the meaning of Horowitz ) so long as the object of the

statute is regulatory and meant to accomplish some public good.

That is, on the government’s reading, a regulatory object is

proof against treating the legislature as having acted to avoid

the government’s contractual obligations, in which event the

sovereign acts defense would not be applicable. But the

government’s position is open to serious objection.268 Justice

Souter found rmined that the concept of finding the gGovernment

liable for damages for the retrospective application of a

sovereign power is not incompatible in all instances with

recognizing the gGovernment’s right to exercise sovereign power

prospectively.269 : As such, Justice Souter reasoned that the

neither the contracts themselves, nor the award of damages, has

267 Id. . 268 Id. at 893 (emphasis added). 269 See, e.g., id. at 894.

78

the affect of limiting the Government’s ability to

“exercise . . . authority to modify banking regulations.”

The government’s position is mistaken, however, for the

complementary reasons that the contracts have not been construed

as binding the government’s exercise of authority to modify

banking regulation or of any other sovereign power, and there has

been no demonstration that awarding damages for breach would be

tantamount to any such limitation.270

The Precision Pine decision lost sight of Justice Souter’s

assessment of the sovereign acts doctrine, however.Precision Pine

states the rule too narrowly, with language that leads to

imprecision.271 Courts should be careful to limit their focus on

evidence of sovereign subjective intent when they assess the

applicability of the sovereign acts doctrine (Principle 3), (just

as they should avoid introducing considerations of subjective

intent when considering the application of Principle 2, — the

270 Id. at 881, . See also . t, n.(. (the Court’s reference to this concept in Footnote 35 of the Opinion stated: “See Speidel, Implied Duties of Cooperation and the Defense of Sovereign Acts in government Contracts, 51 Geo. L.J. 516, 542 (1963) (“’[W]hile the contracting officers of Agency X cannot guarantee that the United States will not perform future acts of effective government, they can agree to compensate the contractor for damages resulting from justifiable acts of the United States in its ‘sovereign capacity.’” “ (footnotes omitted)).” (alteration in original) (emphasis added) (citing Speidel, Implied Duties of Cooperation and the Defense of Sovereign Acts in Government Contracts, 51 GEO. L.J. 516, 542 (1963)). Id. at 890, n.35 (emphasis added).271 See discussion infra Part III.A. (soig

79

duty of good faith and fair dealing).272 The sovereign’s motive

behind its exercise of a sovereign act (e.g., enactment of

legislation) may be pure, and therefore appropriate as to its

prospective effect, but less pure, and therefore inappropriate as

to its retroactive effect.273 . In other words, the sovereign’s

desire to see the prospective application of legislation may not

involve “misbehavior,” “bait and switch,”or “double crossing”

(negative aspects of subjective intent), and yet that same

legislation may have the effect of negating contractor rights

under existing contracts (which may or may not be motivated by

bad intent).274 Thus, application of a legal standard that

examines a sovereign act solely on the basis of whether it

resulted from subjective bad intent inappropriately melds a

concept from Principle 1 into Principle 3, resulting in a

narrower interpretation of the sovereign acts doctrine than what

the Supreme Court described in Winstar. single motive —

particularly a negative motive (“specifically targeted” action) —

is too limited.

In sum, courts should assess the effect/effects of a

sovereign act to at least the same degree that they assess the

sovereign’s motive.275 Examination by motive alone leads to the

272 See discussion supra Part II.B.273 See, e.g.,. Winstar, 518 U.S. at 894. (applying to FIRREA).274 See generally Precision Pine, 596 F.3d at 829. 275 See id. (sovereign motive); Winstar, 518 U.S. at 899 (substantial effect test).

80

binary analysis that hampers the Federal Circuit’s analysis in

Precision Pine, and now some decisions in the tribunals below.276

Examination by effect recognizes that, as to some effects, a

sovereign act may create liability on the part of the government,

but as to other effects, it may not. Injection of the concepts

that reside with Principle 1 (Presumption of Good Faith) — such

as subjective intent, and particularly, bad intent (“misbehavior”

and “bait and switch or double crossing”) — into analysis of the

applicability of Principles 2 and 3 is a recipe for melted

Principles.

III. The Ill Effects that Follow Over ProtectingThe Over-

Protection Of The Government andAnd Conflatingion Of Tthe

Three Legal Principles

In the Wake Of The Federal Circuit’s Decision In Precision Pine: The Federal Circuit’s Imprecise Language And Analysis Have Led To Messy Results As Tribunals Below Try To Determine What Is Left Of The Three Principles.

A. Some Decisions Issued aAfter Tthe Federal Circuit’s

Decision Iin Precision Pine Have Conflated Aand

Confused Tthe Three Principles, Applying Precision

Pine’s Legal Analysis Tto Situations Where Oonly

Government Contractual Acts, Nnot Sovereign Acts, Wwere

Involved

In some lower court cases,Some judges have concluded from

Precision Pine that the Federal Circuit intended to extendthat 276 See discussion infra Part III.A.1.

81

they apply the precedent set in Precision Pine decision’s

language and analysis not only to situations in which the

government acts in its sovereign capacity, but also to situations

in which the government acts solely in its contractual

capacity.to both the Government’s sovereign and its ractual

acts.277 These cases have not involved sovereign acts. Indeed

these cases have not involvedNnone of these cass involved

sovereign acts to which to apply the sovereign acts doctrine

(Principle 3) should apply, but rather dealt with) — no

legislation, no environmental permitting, no regulatory action —

merely allegations that the government breached its contractual

duty of good faith and fair dealing (Principle 2) through action

or inaction entirely associated with the contracts at issue. In

these cases, the contractor has merely complained that the

government breached the duty of good faith and fair dealing in

administering the contracts at issue.278 And yet, the judges in

these cases applied the legal standard that the Federal Circuit

articulated in Precision Pine, which dealt solely with sovereign

acts, not government contractual acts.

For example, Iin White Buffalo Construction, Inc. v. United

States,279 a contractor asserted both that the gGovernment had

277 See, e.g., White Buffalo Constr., Inc. v. United States, 101 Fed. Cl. 1, 13 (2011); Metcalf Const. Co. v. United States, 102 Fed. Cl. 334, 346 (Fed. Cl. 2011).278 See id.279 101 101 Fed. Cl. 1 (2011).

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breached its duty of good faith and fair dealing in administering

its construction contract and that the government ohad acted in

bad faith by converting a termination for default into a

termination for convenience to avoid breach damages (liability

for lost profits). Our discussion concerns the first

allegation.280 The contractor alleged that the Ggovernment

breached its contractual duty of good faith and fair dealing by

concealing a differing site condition on the construction site,

by failing to pursue certain permits required to enable

performance and, by misrepresenting that the gGovernment had

pursued the permits, and by other acts that had the effect of

hindering the contractor’s performance.281 In assessing these

allegations, the court imported the bad faithintent (“bad faith”)

standard applicable under Principle 1 (the presumption of good

faith) to its consideration of the applicability of Principle 2

(the duty of good faith and fair dealing) by citing to the

standard articulated in Precision Pine, which dealt with

Principle 3 (the sovereign acts defense). The court paid the

standard homage to the Core Tenet and noted that the duty of good

faith and fair dealing is implied into every

280 It appears that the contractor alleged both breach of the duty of good faith and fair dealing (Principle 2) and bad faith (Principle 3) in contract administration, which may have contributed to the court’s conflation of the Principles. 281 See id. at 13-198

83

contract.:282 Generally, every contract includes an implied duty of

good faith and fair dealing. Precision Pine & Timber, Inc. v.

United States, 596 F.3d 817, 828 (Fed.Cir.2010) (quoting

Restatement (Second) of Contracts § 205); Bannum, Inc. v. United

States, 80 Fed.Cl. 239, 246 (Fed.Cl.2008). The covenant of good

faith and fair dealing is an implied duty that imposes

obligations on both contracting parties that include the duty not

to interfere with the other party’s performance and not to act so

as to destroy the reasonable expectations of the other party

regarding the fruits of the contract. See Centex Corp. v. United

States, 395 F.3d 1283, 1304 (Fed.Cir.2005).283 The court then

conflated Principles 1 and 2, stating that a contractor can only

prove breach of the duty of good faith and fair dealing

(Principle 2) by overcoming the presumption of good faith — i.e.,

by proving bad faith, government “specific intent to injure” the

contractor — by clear and convincing evidence (Principle 1):.When

the government’s conduct is called into question, “government 282 Sd. at 13

The court held that “[g]enerally, every contract includes an implied duty of good faith and fair dealing. . . . The covenant of good faith and fair dealing is an implied duty that imposes obligations on both contracting parties that include the duty not to interfere with the other party’s performance and not to act so as to destroy the reasonable expectations of the other party regarding the fruits of the contract.

Id. (citing Precision Pine & Timber, Inc. v. United States, 596 F.3d 817, 828 (Fed. Cir. 2010); Bannum, Inc. v. United States, 80 Fed. Cl. 239, 246 (Fed.Cl.2008); Centex Corp. v. United States, 395 F.3d 1283, 1304 (Fed.Cir.2005)). 283 Id. at 13.

84

officials are presumed to act conscientiously and in good faith

in the discharge of their duties.” Bannum, 80 Fed.Cl. at 249

(citing Spezzaferro v. Fed. Aviation Admin., 807 F.2d 169, 173

(Fed.Cir.1986)); Kalvar Corp. v. United States, 543 F.2d 1298,

1301 (Ct.Cl.1976). Thus, in order to overcome the presumption of

good faith, “a plaintiff must present clear and convincing

evidence of bad faith.” Bannum, 80 Fed.Cl. at 249 (citing Am—Pro

Protective Agency v. United States, 281 F.3d 1234, 1238—39

(Fed.Cir.2002)) (internal quotation omitted). Further, to

demonstrate that the government has acted in bad faith, “a

plaintiff must allege and prove facts constituting a specific

intent to injure [the] plaintiff on the part of a government

official.” Pratt v. United States, 50 Fed.Cl. 469, 479

(Fed.Cl.2001) (citing Texas Instruments, Inc. v. United States,

991 F.2d 760, 768 (Fed.Cir.1993)).284The court alo brushed aside

the contractor’s argument that the court had wrongly conflated

Principles 1 and 2, and expressly stated that both Principles

involve proof of bad faith on the part of gGovernment.:White

Buffalo claims that “ ‘[t]he presumption of good faith conduct of

government officials has no relevance’ “with respect to “ ‘claims

that the duties to cooperate and not hinder performance of a 284 Id. (emphasis added). The court noted that “‘government officials are presumed to act conscientiously and in good faith in the discharge of their duties’” and therefore “‘a plaintiff must present clear and convincing evidence of bad faith’” in order to overcome that presumption. Id. (quoting Bannum, Inc. v. United States, 80 Fed. Cl. 239, 249 (2008)).

85

contract have been breached,’ “ and in such cases, proof of a

violation need not be by clear and convincing evidence. Moreland

Corp. v. United States, 76 Fed.Cl. 268, 291 (2007) (brackets in

original) ( quoting Tecom, Inc. v. United States, 66 Fed.Cl. 736,

771 (2005)). Pl.’s Post Trial Rep. Br. at 9. The Court finds it

unnecessary to address this question as under either the

heightened presumption standard or under a lesser standard, White

Buffalo has failed to establish that the government intended to

harm White Buffalo, and, thus, acted in bad faith. 285 In so

ruling, the court used the standard Precision Pine so

articulation ed for the sovereign acts doctrine (Principle 3) in

a case that did not involve any sovereign acts, but only

contractual acts.286 Additionally, Tthe court imported the

subjective intent and bad faith (“specific intent to injure”)

concept from the presumption of good faith (Principle 1), to

assess whether or not the gGovernment had breached its

contractual duty of good faith and fair dealing (Principle 2).287

The same outcome befell the contractor in Metcalf

Construction Co. v. United States.288. In Metcalf Construction

Co., Tthe court completely merged the three distinct Principles

285 Id. SId. 286 See id. White Buffalo. Id. at 2. White Buffalo sued the Government on various chargth. Id. at 18.287 See id 288 No. 07-777C, 2011 WL 6145128 102 Fed. Cl. 3(Fed. Cl. Dec. 9, 2011).

86

into one.289 According to Tthe court in that case, stated its

understanding Precision Pine requires that, in order to prove

that the government breached its contractual duty of good faith

and fair dealing, a contractor must prove subjective bad intent

on the part of government personnel - bad faith, intent to

specifically injure the contractor — in all situations, not

merely situations that involve sovereign acts or where the

contractor specifically alleges bad faith.290 Like the facts at

issuethose in White Buffalo Construction, Inc., the facts in

Metcalf Construction Co. involved government acts that were taken

solely in the contractual arena, not in the sovereign arena:

“Therein, Metcalf claimed that the Navy breached the Contract by

failing to administer it in good faith.”291 No sovereign acts

were at issue in the case, only acts of contract

administration.292 The court in Metcalf Construction Co. found

289 S at 346.290 See id. at 346.291 See id. at 342 (“Metcalf claimed that the Navy breached the Contract by failing to administer it in good faith.”) (emphasis added). Id. at 6 (emphasis added). 292 See id. at 342. It is possible that the contractor contributed to some of the confusion because, according to the court’s decision, the contractor claimed that the gGovernment subjected it “‘to numerous instances of bad faith conduct,” and that the gGovernment had “breached its duty of good faith and fair dealing.’” Id. at 339 (quoting aomplaint at . ¶¶ 17, 8495, Metcaf v. United States, 102 Fed. Cl. 334 (2011) (No. 07-777C))). Thus, the contractor might have specifically alleged bad faith as well as breach of the duty of good faith and fair dealing, which represents the legal standards that apply to governmental contractual acts and sovereign acts, respectively. See supra discussion Part I. This does not, however, explain the court’s

87

that the gGovernment engaged in kindsin the same type of conduct

referenced in the Restatement (Second) of Contracts and in many

judicial decisions as the archetypical of aconduct that

establishes breach of the duty of good faith and fair dealing,

such as — failure to promptly take action necessary to allow the

contractor to perform, poor communication, and acts of

retaliation. The Court noted:The record establishes that there

was a retaliatory aspect to some of the noncompliance notices

that the Navy issued…* * *Having made this

determination, the court would be remiss if it did not state that

the court was singularly unimpressed with the bona fides of CO

Matsuura. TR 117—219 (court examining Ms. Matsuura). It is clear

to the court that Ms. Matsuura’s lack of knowledge and experience

significantly contributed to the lack of trust and poor

communication that plagued the 212 Project at the beginning. It

also appeared that other members of the Navy team actually were

making the decisions, as best evidenced by the significant delay

in promptly investigating the soil expansion issue.293

Under Federal CircuitWinstar, Malone, and other precedent,

the type of failure to cooperate and the hindrances on the part

ofevidenced by the gGovernment in Metcalf Construction Co. should

conflation and melting of the legal standards. 293 Id. at 361, 36427-30 (emphasis added). Indeed, the court there noted that “[t]he record establishes . . . that there was a retaliatory aspect to some of the noncompliance notices that the Navy issued.” Id t(emphasis added).

88

have been would be more than enough to establish that, as an

objective matter, the gGovernment had breached the duty of good

faith and fair dealing it owed to the contractor. In Malone, the

Federal Circuit found that a contracting officer engaged in the

same type of noncooperative behavior that marked the contracting

officer’s behavior in Metcalf — the Contracting Officer had been

“evasive” in refusing to answer questions that would direct the

contractor’s continued performance; he refused to answer the

contractor’s “explicit question concerning whether the standard

of workmanship had changed”; and he failed to allow the

contractor to know the true performance requirements yet

continued to make progress payments to the contractor.294

Forxample, The Federal Circuit in Malone v. United States295

foundassessed the Contracting Oofficer’s actions at issed

breached the duty of good faith and fair dealing under a

reasonableness standard and the criteria discussed in the

Restatement (Second) of Contracts.:

According to Restatement (Second) of Contracts § 241(e) (1981),

“the extent to which the behavior of [a] party failing to perform 294 See, e.g., Malone v. United States, 849 F.2d 1441, 1445 (Fed. Cir. 1988)) . The court in Malone found that the Contracting Officer had been “evasive” in refusing to answer questions that would direct the contractor’s continued performance; he refused to answer the contractor’s “explicit question concerning whether the standard of workmanship had changed,” and he failed to allow the contractor to know the true performance requirements even though heycontinued to make progress payments to the contractor. Id.295 849 F.2d 1441 (Fed. Cir. 1988).

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. . . comports with standards of good faith and fair dealing” is

a significant factor in determining whether that party’s breach

is material. The Restatement also states that “subterfuges and

evasions violate the obligation of good faith,” as does lack of

diligence and interference with or failure to cooperate in the

other party’s performance.296 The Federal Circuit in Malone did

not inject elements of subjective intent, bad faith, or animus

into its assessment of whether the government Government had

breached its duty of good faith and fair dealing.297 Rather, it

interpreted this duty in a way that makes it consistent with the

Core Tenet — that the government and its contractors owe certain

reciprocal duties to one another.298

Even though Tthe court in Metcalf Construction Co. cited

Malone, itbut nonetheless read the decisionMalone in a way that

effectively requires contractors to demonstrate the kind of

subjective bad faith that Principle 2 simply does not entail the

Restatement (Second) and Malone do not require.299 The Metcalf

296 See iId. at 1445 (citing RESTATEMENT (SECOND) OF CONTRACTS § 241 (1981)). (internal citations omitted) .The court specifically stated that: “According to [the] Restatement (Second) of Contracts § 241(e) (1981) . . . ‘[s]ubterfuges and evasions violate the obligation of good faith,’ as does lack of diligence and interference with or failure to cooperate in the other party’s performance.” Id. (alteration in original) (quoting RESTATEMENT (SECOND) OF CONTRACTS § 241 cmt. d (1981)).297 See id. at 1445-46. Malone u tradit-42 (finding evasive behavior by CO a breac implied298 See id. 299 See Metcalf Constr. Co., Inc. v. United States, 102 Fed. Cl. 334, 346 (2011). Thtcalsummarizlding that only we CO’s ive c

90

court added the word “only” to its paraphrase of the Malone

ruling, which makes it appear as if Malone is in line with

Precision Pine’s “specifically targeted” standard, which it is

not.300:Precision Pine, 596 F.3d at 829; see also Malone v. United

States, 849 F.2d 1441, 1445—46 (Fed.Cir.1988) (holding that only

where the CO’s “evasive conduct misled [plaintiff] to perform

roughly 70% of its contractual obligation in reliance on a

workmanship standard” was the issue of breach of good faith and

fair dealing invoked).301 Malone did not state that only the

facts before it would suffice to prove a breach of the

government’s Government’s duty of good faith and fair dealing, as

Metcalf suggests.302

Thus, by turning away from the Malone reasonableness and

Restatement (Second) standard, the Metcalf Construction Co. court

determined that the sufficiency of the gGovernment’s contract

administration acts should be assessed under the Precision Pine

[plaintiff] erfomHowever, Malone did not stand for the proposition that only the specific facts that were dispositive in that case are sufficient to prove the Government’s breach of the duty of good faith and fair dealing. Sealoed States,.2d 14e relevant). 300 See id. at 346. The court summarized the Malone holding as “holding that only where the CO’s ‘evasive conduct misled [plaintiff] to perform roughly 70% of its contractual obligation in reliance on a workmanship standard’ was the issue of breach of good faith and fair dealing invoked.” Id. (alteration in original) (emphasis added) (quoting Malone v. United States, 849 F.2d 1441, 1445-46 (Fed. Cir. 1998)). 301 Metcalf, 2011 WL 6Id.145128 at *11 Tetca summariolding that only he CO’ssive d [plaintiff]perfr(emphasis added). 302 See Malone, 849 F.2d 1441,at 1445. (Fed. 1988) (no on

91

standard announced in Precision Pine,.303 which according to the

court mandated a showing of By so doing, the court injected the

subjective bad intent or, bad faith, even though the governmental

acts at issue were contractual and not sovereign, specifically –

targeted concept into the assessment of not only government

sovereign acts, but also government acts taken solely in the

realm of contract administration:

In addition, our appellate court requires that a breach of the

duty of good faith and fair dealing claim against the government

can only be established by a showing that it “specifically

designed to reappropriate the benefits [that] the other party

expected to obtain from the transaction, thereby abrogating the

government’s obligations under the contract.” Precision Pine,

596 F.3d at 829; see also Centex Corp. v. United States, 395 F.3d

1283, 1304—07 (Fed.Cir.2005) (affirming trial court’s judgment

that government breached the implied covenant of good faith and

fair dealing when Congress enacted targeted tax legislation

depriving Plaintiffs of “a substantial part of the benefit of

their contract with [the government]”). Short of such

interference, it is well established that federal officials are

presumed to act in good faith, so that “[a]ny analysis of a

question of governmental bad faith must begin with the

303 Setcalf, 102 Fed. Cl. at 346 (citing Precsion Pine & Timber, Inc. v. United States, 596 F.3d 817, 828 (Fed. Cir. 2010)PrecisF.3d at 828).)

92

presumption that public officials act conscientiously in the

discharge of their duties.” See Kalvar Corp. v. United States,

543 F.2d 1298, 1301 (Ct.Cl.1976) (internal quotation marks and

citation omitted); see also Spezzaferro v. Fed. Aviation Admin.,

807 F.2d 169, 173 (Fed.Cir.1986) (“government officials are

presumed to carry out their duties in good faith.”).304The court

in Metcalf simply followed the lead of the Federal Circuit in

Precision Pine by injecting language tinged with subjective bad

intent — “misbehavior” — in assessing whether the government’s

Government’s conduct breached its duty of good faith and fair

dealing.305:See Precision Pine, 596 F.3d at 829 (observing that

304 See id. , 102 F Precision Pine, 596 F.3d at 829).See Iid. (emphasis added).e co hed

In addition, our appellate court requires that a breach of the duty of good faith and fair dealing claim against the government can only be established by a showing that it “specifically designed to reappropriate the benefits [that] the other party expected to obtain from the transaction, thereby abrogating the [G]overnment’s obligations under the contract.” . . . Short of such interference, it is well established that federal officials are presumed to act in good faith, so that “[a]ny analysis of a question of governmental bad faith must begin with the presumption that public officials act conscientiously in the discharge of their duties.”

Id. (second alteration in original) (citations omitted) (emphasis added). Metcalf Construction Co. court thereby conflated the bad faith analysis to be performed when evaluating the Government’s sovereign actions with the analysis to be performed when evaluating the Government’s contractual actions. 305 Id. at 364 (citing Precision Pine, 596 F.3d at 829 for the proposition that “[n]ot all misbehavior ... breaches the implied duty of good faith and fair dealing”) (alterations in original) (emphasis added).

93

“[n]ot all misbehavior ... breaches the implied duty of good

faith and fair dealing”).306 Relying upon the imprecise language

and analysis in Precision Pine, the Metcalf Construction Co.

court therefore merged all three Principles into one, all

swirling around the concept centered onof subjective bad intent,

bad faith, specifically – and targeted animus.307

Fortunately, Oother lower court decisions issued

aftersubsequent to Precision Pine have avoided interpreting the

confusing legal standard the Federal Circuit had set out in

Precision Pine simply by reversing the order in which the

decisions discuss issues were disposed.308 We stated in our

discussion of Precision Pine thatAs noted earlier, one of the

factors that contributes that contributed to the confusion

surrounding Precision Pine is thatthe order in which the Federal

Circuit addressed its reasons for finding that the contractor

should not prevail with regard to its allegation that the

government had breached its duty of good faith and fair dealing

is. Specifically, in Precision Pine, the courtal Circui Pine

waited until after it articulated the “specifically targeted”

306 Id. at 627 (emphasis added)iti Pn Pine hat “[n]ot all ehaved duty of good faith and g”).307 See id. at 346. Elsewhere, in D’Andrea Brothers LLC v. United States, 96 Fed. Cl. 205, 221 (2010), the Court applied e court also applied the subjective bad faith standard to another also to a situation in which there were no sovereign acts involved, only government acts taken in the contractual arena. 308 , AECOM Gervices, InBCA No1, 10-CA

94

legal standard to rule that the contractor could not pursue its

allegation of breach of the duty of good faith and fair dealing

on th basis that, as the contractor had no right to expect the

contractualbenefit under the contract that it alleged the

gGovernment’s sovereign act negated. The court found that the

contractor had no right to assume that the government (the Forest

Service in that case) had taken all necessary actions to warrant

that the contractor’s performance would remain uninterrupted —

i.e., there was no reasonable expectation of benefit. sely, A

number of judges have found it unnecessary to interpret the

precise meaning and applicability of Precision Pine’s

“specifically targeted” standard because they have addressed the

benefit issue first.309

In AECOM Government Services, Inc.,310 for example,311 the

contractor alleged that the gGovernment breached its duty of good

faith and fair dealing when Congress enacted legislation that had

the effect of subjectinged the contractor to F.I.C.A. (Federal

Insurance Contributions Act)certain taxes that its offshore

subsidiaries were not required to pay at the time the contractor

executed its pertinent government contract had not been liable

309 See, e.g., AECOM Government Services, ASBCA No. 56861, 10-2 BCA ¶ 34,577.310 ASBCA No. 56861, 10-2 BCA ¶ 34,577.311 GovenA No. 56861, 10-2 BCA ¶ 34,577 (A.S.B.C.A, Oct. 13, 2010).

95

for at the time the contract was formed. 312 Thus, AECOM

Government Services, Inc. thus involved a sovereign act, such

that thenot a government ocontractual actGovernment. The

government asserted the sovereign acts doctrine (Principle 3) as

a defense to the contractor’s claie in defense. The court

ArmBoard of Contract Aboard cited to the Restatement (Second) of

Contracts and, but then quoted Precision Pine’s “old bait and

switch” and “specifically targeted” language.313 In doing so,

Tthe court board rejected the contractor’s reliance upon Centex

Corp.. The court, by findingand stated that, unlike the

government Ggovernt contract in Centex Corp., t in AECOM

overnment Services, Inc.AECOM’s contract did not contain a

“bargained-for-benefit.”314 . Rather, e theAECOM’s contract was

silent as to the contractor’s responsibility to payhe new taxes

F.I.C.A. taxes, and therefore, the board held that the Government

“dts implied duty od fair dealing.”:Unlike the contracts in

Centex, AECOM’s contract did not contain a bargained-for benefit.

AECOM’s contract was silent with respect to the tax status of

offshore subsidiaries. As a result, we conclude that the

government did not breach its implied duty of good faith and fair

312 Id. at 170,466-468. 1-2.313 See id. at 170,468 (citing Precision Pine & Timber, Inc. v. United States, 596 F.3d 817, 829-30 (Fed. Cir. 2010); Centex Corp. v. United States, 395 F.3d 1283, 1304 (Fed. Cir. 2005); RESTATEMENT (SECOND) OF CONTRACTS § 205 (1981)). .314 See id.

96

dealing. Precision Pine, 596 F.3d at 829.It is undisputed that

the FAR does not provide a basis for relief from after-imposed

F.I.C.A. taxes. Accordingly, the government’s motion for summary

judgment is granted only as to the implied duty of good faith and

fair dealing. AECOM’s motion for partial summary judgment is

denied for the reasons stated above.315 Thus, while the Board

carefully quoted the legal standard for Principle 3 (the

sovereign acts doctrine) annou infrom Precision Pine, its

decision rested not on that standard, but rather on its primary

determination that there was no bargained-for-no contractual

benefit that could be targeted by the gnew

legislation.overnment’s legislation that created an after-imposed

F.I.C.A. obligation for the contracto316

315 Id. The court reasoned: Unlike the contracts in Centex, AECOM’s contract did not contain a bargained-for benefit. AECOM’s contract was silent with respect to the tax status of offshore subsidiaries. As a result, we conclude that the government did not breach its implied duty of good faith and fair dealing. . . . It is undisputed that the FAR does not provide a basis for relief from after-imposed F.I.C.A. taxes. Accordingly, the [G]overnment’s motion for summary judgment is granted only as to the implied duty of good faith and fair dealing.

Id. (citations omitted).316 See id. The decision might be questioned in this regard. . The decision discusses the purposes behind Congress’s decision to enact the HEART Act, which imposed the F.I.C.A. obligations on offshore subsidiaries of U.S. companies. Id. at 170,466. The decision quotes from the Congressional Record. Id. at 170,466-467. . The quote contains language suggesting that Congress’s intent for the HEART Act was not only “public and general” in nature, but also “specifically targeted” at existing government

97

B. Other Decisions Hhave Employed a More Careful Analysis

Iin an Attempts To Partially Uundo Some Oof Tthe

Melting Oof Tthe Three Principles Tthat Hhas Followed

Tthe Federal Circuit’s Decisions Iin Am-Pro Aand

Precision Pine

Virtually all tribunals that have considered contractor

allegations that the government has breached contractual duties

of good faith and fair dealing (Principle 2) since the Federal

Circuit issued its February 2010 decision in Precision Pine have

contracts. See iId. at 10,4667-4683-4 quoti154 CONG. REC. S4773-74 (daily ed. May 22, 2008); 154 CONG. REC. , E1077-78 (dily ed. May 20, 2008)).:As the Board noted, tThe Congressional Record for 20 and 22 May 2008 contain the following comments regarding the HEART Act:

[Sen. Baucus (D-MT)]: This bill is paid for by requiring that companies that do business with the Federal government pay their employment taxes. The bill makes sure that foreign subsidiaries of U.S. parent companies that have contracts with the Federal Ggovernment pay employment taxes for their employees. . . . 154 CONG. REC. S4773 (daily ed. May 22, 2008).[[Sen. Grassley (R-IA)]: The bill also ensures that U.S. employers of Americans working abroad pursuant to a [g]overnment contract pay Social Security and Medicare taxes, regardless of whether they operate through a foreign subsidiary.

Id. at 170,467 (emphasis added) (quoting 154 CONG. REC. S4773-74 (daily ed. May 22, 2008)). AECOM Gov’t Servs., Inc., 10-2 BCA ¶ 34,577 (A.S.B.C.A. Oct. 13 2010) (emphasis added.) Congress recognized that certain government contractors were deriving tax advantages by using offshore subsidiaries and wished to extinguish that benefit. Despite the inapposite legislative history, The AECOM decision ruled s forced to conclude that while the that the contractors were enjoying that benefit of tax-exempt holdingsbenefit, they had no right to assume at the time they contracted that the benefit flowed from the contract, or that Congress could not take that benefit away. Id. at 170,468AECOM GoA ¶ 34,577, at 5-6.

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addressed Precision Pine’s language and analysis. Two decisions

issued by the Court of Federal Claims, Firemen’s Fund Insurance

Co. v. United States,317 and Timber Products Co. v. United

States,318 dealt with factual situations similar to those

presented in White Buffalo and Metcalf. All four cases dealt

with contractor allegations that the government breached its

contractual duty of good faith and fair dealing (Principle 1)

through actions taken solely in the contractual arena. No

sovereign acts were involved.

As the previous subsection of this article addressed, Tthe

White Buffalo Construction, Inc. and Metcalf Construction Co.

decisions ignored this the fact that those cases involved no

sovereign acts.319 fact, while oIn contrast, the Firemen’s Fund

Insurance Co. v. United States320 and Timber Products Co. v.

United States321 decisions recognized the importance of analyzing

whether the underlying act at issue is contractual or

sovereignthis fact, and used this analysisit to help

larifyexplain some of the Precision Pine’s holdingconfusing

language and analysis that has fostered confusion.

One of the contractor’s allegations iIn Firemen’s Fund

Insurance Co., one of the contractor’s allegations was that the

317 92 Fed. Cl. 598 (2010)..318 No. 01-627C. 2011 WL 6934815 (Fed. Cl. Dec. 29, 2011).319 See discussion supra Part III.A.1.320 92 Fed. Cl. 598 (2010).321 Timber Prods. Co. v. United States, 103 Fed. Cl. 225 (2011).

99

gGovernment breached the duty of good faith and fair dealing

(Principle 2) it owed a construction contractor’s surety322 when

the gGovernment waited many months before informing the

contractor’s surety of its disapproval of a site rewatering re-

watering plan.323 The gGovernment cited the language and analysis

in Precision Pine as a defense to the contractor’s claim.324 The

court appropriately, as others have consistently done (whether

they have followed the Principles or not), began its discussion

with a recitation of the Core Tenet and Principle 2.:“The United

States, no less than any other party, is subject to this

covenant.” Precision Pine, 596 F.3d at 828 ( citing First

Nationwide Bank, 431 F.3d at 1349).“Both the duty not to hinder

and the duty to cooperate are aspects of the implied duty of good

faith and fair dealing.” Id. at 820 n. 1 ( citing Essex Electro

Eng’rs, 224 F.3d at 1291). The specifics of the parties’ duties

under this covenant are dependent on the particular circumstances

of the case. See Milmark Servs., Inc. v. United States, 731 F.2d

855, 859 (Fed.Cir.1984).The government breaches these duties when

it acts unreasonably under the circumstances, viz., if it

unreasonably delays the contractor or unreasonably fails to

cooperate. See C. Sanchez & Son, 6 F.3d at 1542 (“The government

322 Firemen’s Fund completed the construction project as surety following the contractor’s bankruptcy. 323 See Fireman’s Fund, 92 Fed. Cl. at 618680. (providiatering contract).324 See id. at 675.

100

must avoid actions that unreasonably cause delay or hindrance to

contract performance.”); Commerce Int’l Co. v. United States, 167

Ct.Cl. 529, 338 F.2d 81, 86 (1964) (determining that “breach of

[the] obligation of reasonable cooperation” depends upon

“particular contract, its context, and its surrounding

circumstances”).325 After the court paid homage to the Core Tenet

and Principle 2, The courtit then stated that it discussedwas

appropriate to comment further on the Federal Circuit’s ruling in

Precision Pine regardingon the issue of breach of the duty of

good faith and fair dealing, (Principle 2) because the

gGovernment had insisted in Firemen’s Fund that the Precision

Pine ruling applied to “all of plaintiffs’ claims involving

government-caused delay,” not merely those that could be

considered sovereign actsinsisted that Precision Pine applied to

all of the contractor’s claims:Because defendant trumpets the

decision as a deus ex machina for all of plaintiffs’ claims 325 Id. at 660, 675. The court held:

“The United States, no less than any other party, is subject to this covenant.” . . . “Both the duty not to hinder and the duty to cooperate are aspects of the implied duty of good faith and fair dealing.” . . . The specifics of the parties’ duties under this covenant are dependent on the particular circumstances of the case. . . . The government breaches these duties when it acts unreasonably under the circumstances, viz., if it unreasonably delays the contractor or unreasonably fails to cooperate. 7

Id. at 660 (emphasis added) (quoting Precision Pine & Timber v. United States, 596 F.3d 817, 820, 828 (Fed. Cir. 2010)) (citing Milmark Servs., Inc. v. United States, 731 F.2d 855, 859 (Fed. Cir. 1984); C. Sanchez & Son, Inc., v. United States, 6 F.3d 1539, 1542 (Fed. Cir. 1993); Commerce Int’l Co. v. United States, 338 F.2d 81, 86 (Ct. Cl. 1964)). 5 (emphasis added).

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involving government-caused delay, and because Precision Pine’s

holding as to the implied duty of good faith and fair dealing

impacts the allegations of government-caused delay in the Board

claims differently from those implicated by plaintiffs’ labor

claim, a further analysis of Precision Pine and its holding is

warranted..326 However, Tthe court foundthen explained that the

Federal Circuit’s ruling in Precision Pine applied only to

situations that involve sovereign acts and government conduct

that arises outside the context of contract administration,

consistent with Principle 3 or the sovereign acts doctrine.

(Principle 3)Precision Pine’s two-part test for whether the

government breaches the implied duty of good faith and fair

dealing must be read in this particular context, a situation

where the government’s alleged wrongful conduct does not arise

directly out of the contract, i.e., key to the alleged breach are

actions involving another government actor or a third party.

(emphasis added) See, e.g., Bateson-Stolte, 305 F.2d at 388-89

(finding no breach of Corps’s duty of good faith and fair dealing

because Corps-as a separate government agency-could not be 326 Id. at 676.

Because defendant trumpets the decision as a deus ex machina for all of plaintiffs’ claims involving Government-caused delay, and because Precision Pine’s holding as to the implied duty of good faith and fair dealing impacts the allegations of Government-caused delay in the Board claims differently from those implicated by plaintiffs’ labor claim, a further analysis of Precision Pine and its holding is warranted.

Id. .

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charged with knowledge of location and wage-rate impact of

unrelated project). In Precision Pine the alleged breach

occurred during a period of suspended contract performance,

during which the Forest Service breached its statutory duty

arising under the ESA, a duty owed not to the plaintiff, but to

the Fish and Wildlife Service. Similarly, in the two cases

primarily relied on by the Federal Circuit, First Nationwide and

Centex, Congress was alleged to breach the implied duties in

contracts between the plaintiffs and the Federal Savings and Loan

Insurance Corporation. See First Nationwide, 431 F.3d at 1344-

45; Centex, 395 F.3d at 1304-06. It is in this context, where

the government conduct giving rise to the allegation of breach

does not arise directly out of the contract, that the Federal

Circuit clarified the rule that the government’s liability

attaches when the “subsequent government action is specifically

designed to reappropriate the benefits the other party expected

to obtain from the transaction.” Precision Pine, 596 F.3d at 829.

Here, by contrast, the Corps’s obligations arise out of its

Contract with the Joint Venture, and the alleged breach involves

the Corps’s performance under the Contract.327 InsteadFinding

that Precision Pine did not apply to the facts presented, the

court in Firemen’s Fund Insurance Co. stated that the standard

set out in Malone and its progeny (Principle 2) continued to

327 Id. at 677 (emphasis added).

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govern situations in which an alleged government ovrnment failure

to cooperate or hinder performance arises from acts the

gGovernment has taken in its contractual capacity, not in its

sovereign capacity:

The court concluded:s that

Precision Pine does not foreclose consideration of whether the Corps breached its contractual duty of good faith and fair dealing based on the standards set forth in Malone and its progeny. . . . As explained in detail above, the [T]he facts giving rise to Precision Pine’s holding are sufficiently distinguishable from this case. Moreover, nothing in Precision Pine overrules the prior cases cited. Cf. Precision Pine, 596 F.3d at 830 ( citing Malone, 849 F.2d at 1445-46).328

The facts in Timber Products Co. presented a somewhat more

complicated situation than those in Fireman’s Fund Insurance

Co..329 However, the court carefully analyzed the nature of the

ggovernment acts and omissions at issue.330 In Timber Products

Co., tThe contractor alleged that the government had breached the

contractual duty of good faith and fair dealing (Principle 2) by

awarding timber sale contracts prior to performing required

environmental surveys.331 The contractor alleged that the

gGovernment awarded the contracts by relying upon an

interpretation of applicable environmental law that it knew would

be unlikely to prevail in a pending federal district court

328 Id. at 678 (citing Precision Pine, 596 F.3d at 830). .329 See Timber Prods. Co. v. United States, 103 Fed. Cl. 225 (Fed11).Firean’s Fu330 Id. at 2444.331 Id. at 226-24providing l

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action.332 The gGovernment asserted the sovereign acts doctrine

in defense, claiming that the gGovernment’s obligation to observe

and execute environmental laws was a sovereign act.333 The

court disagreed with the Government, finding that the

contractor’s allegation was aimed at the gGovernment’s decision

to award the contracts prior to performing the required surveys,

not ther than the Ggovernment’s failure to perform the necessary

environmental surveys themselves.334 The court stated that the

duty breached ran specifically to the contractor, not to third

parties or the public in general, as did the duty in Precision

Pine.335

The court in Timber Products Co. relied on the reasoning

infollowed Firemen’s Fund Insurance Co. byin tracing outlining

when Precision Pine does and does not applies,y and when it does

not apply, and in affirming that the “reasonableness” standard

articulated in First Nationwide and Centex Corp. determines

whether the Government has breached the contractual duty of good

faith and fair dealingMalone and similarly reasoned decisions

applies when the government acts under review arose solely in the

contractual arena, rather than in the sovereign arena:.Defendant,

relying on Precision Pine, submits that the legal standard for

332 See id. at 242-43.333 See id. at 243.334 See id. at 244-45.335 See id. at 245.

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assessing whether the government breached the implied duties to

cooperate and not hinder performance is whether the government:

(1) took an action “specifically targeted” at Plaintiff, and (2)

“reappropriate[d] the benefits [Plaintiff] expected to obtain

from the transaction, thereby abrogating the government’s

obligations under the contract.” 596 F.3d at 829—30.

The “specifically targeted” standard in the cases relied

upon by the Precision Pine court— First Nationwide and Centex—was

articulated in the context of analyzing whether the government

action, there the Guarini legislation, was a sovereign act—a

general and public act of broad application taken by the

sovereign in its sovereign, governmental capacity—the type of act

which would have defeated government’s liability. See First

Nationwide Bank v. United States, 431 F.3d 1342 (Fed.Cir.2005);

Centex, 395 F.3d at 1307. Under the sovereign acts doctrine, the

government cannot be held liable for an obstruction to the

performance of a particular contract resulting from the

government’s public and general acts as a sovereign. Horowitz v.

United States, 267 U.S. 458, 461, 45 S.Ct. 344, 69 L.Ed. 736

(1925); Yankee Atomic Elec. Co. v. United States, 112 F.3d 1569,

1574 (Fed.Cir.1997).FN13The sovereign acts doctrine attempts to

“balance[ ] the government’s need for freedom to legislate with

its obligation to honor its contracts by asking whether the

sovereign act is properly attributable to the government as

106

contractor.” United States v. Winstar Corp., 518 U.S. 839, 896,

116 S.Ct. 2432, 135 L.Ed.2d 964 (1996). This balancing “is not a

hard and fast rule, but rather a case-specific inquiry that

focuses on the scope of the [governmental act] in an effort to

determine whether, on balance, that [act] was designed to target

prior governmental contracts.” Yankee Atomic Elec., 112 F.3d at

1575 (emphasis added). Thus, the “specifically targeted”

language in First Nationwide and Centex was articulated in the

context of resolving the government’s sovereign acts defenses,

and was not broadly asserted as replacing the reasonableness

standard for determining whether there was a breach of the

implied duty of good faith and fair dealing. See Centex, 395

F.3d at 1307 (noting that the sovereign acts doctrine does not

apply to “legislation targeting a class of contracts to which the

government is a party”). Given its reliance on Nationwide and

Centex, Precision Pine should not be interpreted as creating a

wholly new standard, and displacing the well entrenched

reasonableness standard for determining whether there was a

breach of the implied duties.Precision Pine did not purport to

overrule or depart from Scott Timber, American Export, Sanchez,

Fuller or Malone v. United States, 849 F.2d 1441 (Fed.Cir.1988).

As the Court of Federal Claims recognized in Fireman’s Fund

Insurance Company v. United States, 92 Fed.Cl. 598 (2010),

“Precision Pine does not foreclose consideration of whether [the

107

government] breached its contractual duty of good faith and fair

dealing based on the standards set forth in Malone and its

progeny.” 92 Fed.Cl. at 677—78 (citing Malone v. United States,

849 F.2d 1441 (Fed.Cir.1988)). In short, the Fireman’s Fund

court found the reasonableness standard was not changed by

Precision Pine, stating:The government breaches [the covenant of

good faith and fair dealing] when it acts unreasonably under the

circumstances, viz., if it unreasonably delays the contractor or

unreasonably fails to cooperate. See C. Sanchez & Son, 6 F.3d at

1542 (“The government must avoid actions that unreasonably cause

delay or hindrance to contract performance.”); Commerce Int’l Co.

v. United States, 167 Ct.Cl. 529, 338 F.2d 81, 86 (1964)

(determining that “breach of [the] obligation of reasonable

cooperation” depends upon [the] “particular contract, its

context, and its surrounding circumstances”).Precision Pine, the

Federal Circuit’s most recent explication of the implied duty of

good faith and fair dealing, does not change the standards cited

above.92 Fed.Cl. at 675—76.In addition to holding that Precision

Pine does not foreclose the use of the reasonableness standard

for determining breaches of the implied duty of good faith and

fair dealing, the Fireman’s Fund court limited the “specifically-

targeted” test articulated in Precision Pine to its context: “a

situation where the government’s alleged wrongful conduct does

not arise directly out of the contract, i.e., key to the alleged

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breach are actions involving another government actor or a third

party.” 92 Fed.Cl. at 677.336 Applying this standard toe law to

the facts, the court found that: (1) the gGovernment’s conduct

arose from a duty owed to the contractor, not to third parties;

(2) accordingly,t therefore, the gGovernment’s conduct should be

assessed under a reasonableness standard (Principle 2), not a

“specifically targeted” or other subjective intent standard

(Principle 1) or Precision Pine’s articulation of Principle 3

(the sovereign acts doctrine (Principle 3); and (3) that the

gGovernment’s conduct of (awardng of contracts while knowing that

a court wouldwas likely to enjoin performance) violated the duty

of good faith and fair dealing (Principle 2) it owed the

contractor.. The court stated:Unlike Precision Pine, the Forest

Service’s obligations here ran directly to Timber Products under

the Jack Heli contract, not to a third party under a statute or a

different contract, and the alleged breach directly impacted

Timber Products’ ability to perform under this contract. As

such, the Scott Timber reasonableness standard, not Precision

Pine’s specifically-targeted standard, applies.337As the court in

Scott Timber recognized, a breach of the implied duty of good

faith and fair dealing may occur “as” a contract is awarded. 86

336 Timber Prods, 2011 WL 6934815 at *22-23 (emphasis added).e id. at 243-244. (ciian’s Fund Ins. Co., .337 Id. at 24.

109

Fed.Cl. at 117.338The Court finds that the government acted

unreasonably and breached its duties to cooperate and not hinder

performance by awarding the timber sale knowing of the risk of an

injunction and suspension, but never telling Timber Products.

Because of these breaches, the government’s liability is not

limited to out-of-pocket expenses.339

IV. Conclusion: The Practical Effects of Conflating The Three

Principles

338 Id. at 25339 The court stated:

Unlike Precision Pine, the Forest Service’s obligations here ran directly to Timber Products under the Jack Heli contract, not to a third party under a statute or a different contract, and the alleged breach directly impacted Timber Products’ ability to perform under this contract. As such, the Scott Timber reasonableness standard, not Precision Pine’s specifically-targeted standard, applies. . . . As the court in Scott Timber recognized a breach of the implied duty of good faith and fair dealing may occur “as” a contract is awarded. . . .

Id. (citing Scott Timber Inc. v. United States, 86 Fed. Cl. 102, 117 (2009)).

Therefore, the court concluded that:The Court finds that the Government acted unreasonably and breached its duties to cooperate and not hinder performance by awarding the timber sale knowing of the risk of an injunction and suspension, but never telling Timber Products. Because of these breaches, the Government’s liability is not limited to out-of-pocket expenses.

Id. at 226 (emphasis added). See Timber Products Co., 103 Fed. Cl. at 245-46. *1.; Am. Gen. Trading & Contracting, WLL, 12-1 BCA ¶ 34,905 (A.S.B.C.A. Dec. 13, 2011).

110

It would be easy to dismiss the melting of the Core Tenet

and the three Principles by the Federal Circuit and some lower

court judges of tribunals below as merely an unfortunate legal

detour. What more is it than case law gone awry? That would not

be the first time this has happened, nor will it be the last,

some might argue. Like the environment, case law tends to heal

itself if left alone. Isn’t this somewhat of an overblown

academic exercise? No, we think not. Justices Souter340 and

Breyer,341 the panel that decided Malone and panels that decided

several decisions similarly reasoned, Judge Newman342 and several

other judges, and many commentators and scholars from Stanfield

Johnson343 to Professors Nash344 and Scwhartz,345 think not. We

340 See United States v. Winstar Corp., 518 U.S. 839 (1996).341 See Mobil Oil Exploration & Prod. SE., Inc. v. United States, 530 U.S. 604, 607-08 (2000). MMobil Oil Expl. & Prod. Se., Inc. v. United States, 530 U.S. 604 (2000).342 See W. Johnson, The Federal Circuit’s Great DissenterStanfield Johnson, supra note .Error: Reference source not found “The Federal Circuit’s Great Dissenter and the ‘National Policy of Fairness to Contractors,’” 40 Pub. Cont. L.J. 275 (Winter 2011)343 See i Id.344 See Ralph C. Nash, PostscriptNash, supra note Error: Reference source not found. “Postscript: Breach of the Duty of Good Faith and Fair Dealing,” 24 No. 5 Nash & Cibinic Rep. ¶ 22 (May 2010).345 See Joshua I. Schwartz, The Status of the Sovereign Acts and Unmistakability Doctrines Schwartz, “The Status of the Sovereign Acts and Unmistakability Doctrines in the wake of Winstarsupra note ; ShError: Reference source not foundError: Reference source not foundwartz, : An Interim Report,” 51 Ala. L. Rev. 1177 (Spring 2000); Joshua I.Schwartz, “Assembling Winstar: Triumph of the Ideal of Congruence in Government Contracts Law,” 26 Pub. Cont. L.J. 481 (Summer 1997).ra note .

111

have already examined to some extent how But as this article has

demonstrated, the Federal Circuit’s use of imprecise language and

analysis regarding this important area of government contracts

law has caused considerable confusion within the federal

judiciary.346 Over time, the practical effects of conflating the

three Principles could become even more corrosive to the

relationship between the gGovernment and its contractors.347

At the heart of the Core Tenet is the concept that it is not

only good and fair to contractors to place them on an equal

footing with the gGovernment when they enter and perform

government contracts, but it is good and fair to the government

Government as well.348 If the Ggovernment cannot be trusted as a

reliable partner in contracting, the pool of entities willing to

contract with the Ggovernment would likelywill shrink, and those

that remain would probablywilling to contract will inject risk

factors into their pricing. In the end, the gGovernment will pay

more, and consequently so too — will the taxpayer will pay more.

As the Supreme Court has stated:

Injecting the opportunity for unmistakability litigation into every common contract action would, however, produce the untoward result of compromising the Ggovernment’s

346 See discussion supra Part III.A.347 See United States v. Winstar Corp., 518 U.S. 839, 884 (1996) (over-protection “undermin[es] the Government’s credibility at the bargaining table and increase[es] the cost of its engagements”).348 See generally Lynch v. United States, 292 U.S. 571, 579 (1934) (explaining the core tenant).

112

practical capacity to make contracts, which we have held to be “of the essence of sovereignty” itself. United States v. Bekins, 304 U.S. 27, 51—52, 58 S.Ct. 811, 815, 82 L.Ed. 1137 (1938).FN28 From a practical standpoint, it would make an inroad on this power, by expanding the Ggovernment’s opportunities for contractual abrogation, with the certain result of undermining the government’s credibility at the bargaining table and increasing the cost of its engagements. As Justice Brandeis recognized, “[p]unctilious fulfillment of contractual obligations is essential to the maintenance of the credit of public as well as private debtors.” Lynch v. United States, 292 U.S., at 580, 54 S.Ct., at 844.349

Standards, including legal principles, drive conduct. This

is not a matter of ethics; it is a matter of human nature, and

business. How many businesses, or individuals, pay more taxes

than they are required to pay? They may contribute generously to

charities, but few if any pay more taxes than they are required

to pay.350 Government procurement and contract administration

employees are obligated to obtain the best value for the taxpayer

money they are charged with spending.351 They are obligated to

pursue the most favorable conditions and outcomes they can

obtain.352 But Iif they government employees are allowed to

pressureknow that they cannot subject the government to liability

by squeezing contractors into until the contractors givinge

349 See Winstar, 518 U.S. at 884 39 (emphasis added) (alteration in original) (quoting Lynch v. United States. 292 U.S. 571, 580 (1934)) (citing United States v. Bekins, 304 U.S. 27, 51-52 (1938)). .350 [I don’t think we need a FN for this – showing that people do not pay more than their fair share of taxes]351 See FAR 1.102(a).352 See id.

113

extra-contractual concessions during contract performance without

subjecting the Government to liability, they will, and arguably

are obligated to, squeeze the contractors. then the Squeezing

would include delay, threats of termination or negative past

performance reports, evasion of responses, and any other acts and

omissions that fall well short of specific intent to injure a

contractor, but have the practical effect would beof preventing

the contractor from realizing the benefits it reasonably

anticipated when it entered into its government contract. The

same would be true if the balance were tipped in favor of the

contractor side. Government contracts clients ask, “What are we

required to do?” when seeking advice about compliance with a

regulation or contract provision. They may decide that it is

prudent as a business matter to foster their long term

relationship with a government customer — i.e., to do more than

that which is required of them by contract or regulation in a

particular circumstance. However, a determination of what is

required is almost always a starting point. If a lower level of

performance is required, decision-making starts at that point; if

a higher level of performance is required, decision-making starts

at the point.

Again, although consideration of ethics may be relevant

to this analysis, the analysis does not rest on considerations of

ethics. People in business are busy; they do not get to some

114

tasks; they mean no harm to their contracting partners when they

miss response deadlines. Absent the use of risk-shifting

provisions, universal rules of contracting make a party who

contracts with another liable to the other for delays in

performing tasks that would allow the other to enjoy the benefits

of the contract the two have executed. The Precision Pine

language and analysis, however, and the manner in which some

tribunals have interpreted itthe language and analysis, negate

these universal rules of contracting, and substantially erode the

Core Tenet.353

Left as is, application of the conflated Principles

articulated in Precision Pine and some its progeny will likely

lead to the deterioration of government-contractor relations and

will, undermine the gGovernment’s credibility at the bargaining

table, and leading to higher procurement costs. The Federal

Circuit should find occasion to revisit its articulation and

analysis of the Principles that govern this area of the law to

give clear guidance to the tribunals below, regulators,

government contract administration personnel, and contractor

personnel. Such analysis would do well to avoid over-protection

of the government as contractor, and, to pay heed to the Supreme

Court’s advice — Let the government contract.

353 See discussion supra Part II.C.

115