Government Contracts: Does the Government have an implied duty of good faith and fair dealing?

By Kelline R. Linton,
Junior Associate.

 

While a basic contracting principle is that a commercial buyer has an implied duty of good faith and fair dealing, the Precision Pine rule limited the application of this duty in the federal contract context. However, a recent 2014 Federal Circuit court decision has now called this narrow rule into question by holding the government to the traditional duty of good faith and fair dealing.

 

In a 2010 decision of the U.S. Court of Appeals of the Federal Circuit, a panel of the court adopted a narrow rule that apparently limited the government’s duty of good faith. In Precision Pine & Timber, Inc. v. U.S., 596 F.3d 817 (Fed. Cir. 2010), the panel decided that the government could only breach its duty of good faith and fair dealing in situations where the government action “specifically targeted” the contractor or had the effect of taking away one of the benefits promised to the contractor.

 

A year later, in Metcalf Construction Co. v. U.S., 102 Fed. Cl. 334 (2011), a judge from the Court of Federal Claims used the Precision Pine’s narrow rule in a construction contract case to hold that the government’s egregious conduct did not violate its duty of good faith and fair dealing because the contractor had failed to prove the government’s actions specifically targeted the contractor.

 

However, in February 2014, a panel of the Federal Circuit reversed the Metcalf Construction Co. decision (Metcalf Construction Co. v. U.S., 2014 WL 519596, 2014 U.S. App. LEXIS 2515 (Fed. Cir. Feb. 11, 2014)). The panel found that the lower court had interpreted Precision Pine too narrowly. “Specific targeting” was only an example of conduct that could constitute the government’s breach of its implied duty of good faith and fair dealing. Further, the implied duty did not need to be contained in the express provisions of the contract; instead, the contract had to be examined only to ensure it did not override the implied duty by expressly addressing the disputed government conduct.

 

So which rule applies? Technically, both rules are still good law since they were decided by two different panels. However, federal contractors may use the most recent court decision to encourage the government to act fairly in all aspects of the contract. Further, the full court of the Federal Circuit may review either rule in the near future to resolve the present conflict of law. We will keep you posted on the outcome of the good faith and fair dealing rule in the federal contract context.

 

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