Civilian Board of Contract Appeals Addresses the Interplay Between ID/IQ Contracts and the Implied Duty of Good Faith

In Future Forest, LLC, CBCA 5863 (March 9, 2020), the Civilian Board of Contract Appeals discussed the relationship between a minimum delivery order, comments on what volume of deliveries the contractor could anticipate under the contract, and the implied covenant of good faith and fair dealing.

Background

Future Forest contracted with the Government to treat and remove small diameter trees and biomass in the Apache-Sitgreaves National Forest. The contract was an ID/IQ contract with the contract minimum being 5,000 acres per year for a total of 50,000 acres over the 10-year term of the contract. In its appeal, Future Forest alleged that statements by Government employees created a reasonable expectation that the Government would provide Future Forest with 150,000 acres, and that the Government violated the implied duty of good faith and fair dealing when it failed to fulfill Future Forest’s “reasonable expectation.” 

The Government moved for and was granted summary judgment on the issue of whether the duty of good faith and fair dealing can be the basis for a claim for acreage amounts beyond the contract minimum in an ID/IQ contract. The Board held that there could be no legal “reasonable expectation” to receive 150,000 acres under the ID/IQ contract, as the contractual language did not create such an expectation, and that whatever Future Forest and Government personnel may have anticipated, or hoped for, at the time of contract signing or during post-award discussions, represents inadmissible parol evidence.

The Board further expressed that written language of the contract with the guaranteed minimum dictates the parameters of reasonable expectations.

Appeal

After reviewing the history of the contract and appeal, the Board discussed the parameters of the duty of good faith and fair dealing. After noting that every contract contains such a duty and that such duty “imposes obligations on both contracting parties that include the duty not to interfere with the other party’s performance and not to act as to destroy the reasonable expectations of the other party regarding the fruits of the contract,” the Board went on to note:

“[T]he nature of that bargain is central to keeping the duty focused on ‘honoring the reasonable expectations created by the autonomous expressions of the contracting parties” and that “[t]The implied covenant of good faith and fair dealing is limited by the original bargain: it prevents a party’s acts or omissions that, though not proscribed by the contract expressly, are inconsistent with the contract’s purpose and deprive the other party of the contemplated value.”

However, according to the Board the implied duty cannot expand a party’s contractual duties beyond those in the express contract or create duties inconsistent with the contract provisions.

The Board then explained the purpose of ID/IQ contracts, stating that “[t]his minimum order quantity is the principal consideration provided by the Government in an ID/IQ contract.” Noting that the minimum quantity required was 5,000 acres per year, the Board stated it would not look to extrinsic evidence to interpret the contract’s clear provision.

The Board stated: “Simply put, intentions, plans, or anticipations on the part of agency officials, even a contracting officer, to order more than the stated minimums set forth in an ID/IQ contract do not equate to contractual commitments.” The Board then quoted from another decision and summarized that case by noting “[n]either faulty estimates” nor “less than ideal contracting tactics” are sufficient to overcome the Government’s obligation to order only the minimum guaranteed in the ID/IQ contract.

The Board concluded that Future Forest could not have had “reasonable expectations” rooted in the duty of good faith and fair dealing that the Government would have ordered more than the contract minimum because, in this ID/IQ contract, the Government’s obligations regarding quantity were defined by the contract minimum.

Key Takeaways

The lesson learned from this case is to make sure that you understand that the terms of your contract will take precedence over any pre-award understanding you believe you may have with Government officials when the terms of that understanding are inconsistent with the contract’s plain language.

You should make sure any material pre-award terms that you believe to be part of “the basis of the bargain” are reduced to writing and reflected in the executed contract. The same holds true for negotiation and execution of post-award modifications: make sure that any discussions varying the terms of a contract are reduced to a formal modification, as the implied covenant of good faith and fair dealing cannot be used as a basis for altering the explicit terms of a contract.