Bad Faith And Unfair Dealing On Government Construction Contracts By Government Actors

Is the absence of good faith a significant problem in construction contracting? 

In my own experience, yes.  Speaking with reference to federal government construction contracting only, rarely have I been involved in or read about a serious contract dispute except that some form of government actor good faith failure was not alleged, alluded to, or appeared to be, involved.

There are more species of government contracting bad faith than one can count.  The one where a contractor cooks the books in support of his contract claim is different than what I write about here.  That little exercise will most likely get him into a federal indictment under the False Claims Act.

Contracts and agreements of all stripes imply, as opposed to explicitly state, some degree or form of a “covenant of good faith and fair dealing”.  For example: 

“325. Breach of Covenant of Good Faith and Fair Dealing - Essential Factual Elements

In every contract or agreement there is an implied promise of good faith and fair dealing. This means that each party will not do anything to unfairly interfere with the right of any other party to receive the benefits of the contract; however, the implied promise of good faith and fair dealing cannot create obligations that are inconsistent with the terms [in] the contract.”  California Civil Jury Instructions

And: 

“Implied covenant of good faith and fair dealing n. a general assumption of the law of contracts, that people will act in good faith and deal fairly without breaking their word, using shifty means to avoid obligations, or denying what the other party obviously understood.  The Free [online] Dictionary.” 

And also: 

“d. Good faith performance.  Subterfuges and evasions violate the obligation of good faith in performance even though the actor believes his conduct to be justified.”  Restatement (Second) of Contracts s 205 (1979 Main Vol.), Duty of Good Faith and Fair Dealing.

The problem is that government actors, as opposed to ordinary mortals, are essentially exempted; they are immune.  They are protected by a proof standard near-impossible to meet.  They are, preemptively, “presumed” by the government, and construction case law, to always act in good faith. 

“The obligation of good faith dealing is implied in every contract with the government. However, government officials are presumed to act in good faith in the discharge of their duties. Furthermore, it takes "well-nigh irrefragable proof" to the contrary to induce the court to abandon this rebuttable presumption. In this connection, a plaintiff must allege and prove facts constituting malice or, in other words, a specific intent to injure the plaintiff on the part of a government official.  Moreover, the required "malice" or "specific intent to harm" may be demonstrated only by clear and strong proof of specific acts of bad faith.”  Joseph W. Morris et al, 33 Fed. Cl. 733, (U.S. Court of Federal Claims, 1995). 

How difficult is it to meet this standard?  In Gadsden v. United States, 111 Ct. Cl. 487, 489-90, 78 F. Supp. 126, 127, (1948), the court compared bad faith to actions which are "motivated alone by malice."  How tough is this?  Proof of malice focuses on the mental state where the actor operates in reckless disregard of the law in general and of the legal rights of others.

A contractor harmed by government bad faith contract administration to the extent he feels he must claim for money damages would do well to avoid the head-on approach of alleging bad faith per se.  There may be another way of obtaining relief by an alternative word choice.

Bad faith contract administration inevitably equates to interference with the contractor’s performance of the contract.  The alternative approach, which has a chance of success, is to allege material breach of contract, or a government constructive change to the contract, and initially request approval by the contracting officer of an equitable dollar and time adjustment to the contract.  In 1996 the Armed Services Board of Contract Appeals (a peer tribunal to the U.S. Federal Court of Claims) gave a green light of approval to such an approach:

“In Government contract practice, breach of the duty of good faith performance is often manifested by the Government's violation of its implied duty not to hinder or interfere with the contractor's performance. Lewis-Nicholson, Inc. v. United States, 550 F.2d 26, 32 (Ct. CI. 1977); Peter Kiewit Sons' Co. v. United States, 151 F. Supp. 726, 731 (Ct. CI. 1957); see Adams v. United States, 358 F.2d 986 (Ct. CI. 1966); cf. Malone v. United States, 849 F.2d 1441, 1445-6 (Fed. Cir. 1988) (evasiveness and misleading conduct by contracting officer). Such interference may be treated as a breach or a constructive change, entitling the contractor either to damages or an equitable adjustment and/or excusing the contractor's delayed performance, without necessarily being branded "bad faith."”  Appeal of J.A. Jones Construction Co., ASBCA No. 43344, 96-2 BCA 28,517.

Government actors so inclined are not completely unaware of their essential immunity when dealing unfairly with a contractor, which tends to propagate yet more bad faith behavior and unfair dealing.  Sometimes such dealing permeates an entire government branch, post or district. 

If you have these issues in your government construction contracts, call me at 205-349-3516.  I charge no fee for initial review to test the strength of your potential claims and discuss them with you.

Glen L. Eaton

ConstructionClaimsExpert.com