BGT Holdings LLC v. United States

• Citation: 984 F.3d 1003
• Decision Date: 23 December 2020
• Docket Number: 2020-1084
• Parties: BGT HOLDINGS LLC, Plaintiff-Appellant v. UNITED STATES, Defendant-Appellee
• Court: U.S. Court of Appeals — Federal Circuit

984 F.3d 1003

BGT HOLDINGS LLC, Plaintiff-Appellant

v.UNITED STATES, Defendant-Appellee

2020-1084

United States Court of Appeals, Federal Circuit.

Decided: December 23, 2020

Milton C. Johns, Executive Law Partners, PLLC, Manassas, VA, argued for plaintiff-appellant.

Borislav Kushnir, Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for defendant-appellee. Also represented by Jeffrey B. Clark, Elizabeth Marie Hosford, Robert Edward Kirschman, Jr.

Before Prost, Chief Judge, Bryson and Stoll, Circuit Judges.

Bryson, Circuit Judge.

BGT Holdings LLC appeals from a decision of the United States Court of Federal Claims ("the Claims Court") dismissing its claims arising from the U.S. Navy's withholding of certain government-furnished equipment under a fixed-price contract. The dismissal followed the court's ruling that BGT had contractually waived its claims of constructive change through ratification, official change through waiver, and breach for failure to award an equitable adjustment. The court also held that BGT insufficiently alleged a breach of the implied duty of good faith and fair dealing. We affirm the dismissal of the breach of good faith and fair dealing claim but vacate the court's dismissal of the remaining claims.

I

A

In 2014, BGT contracted with the Navy to construct and deliver a gas turbine generator. The Navy agreed to supply certain government-furnished equipment ("GFE") that BGT would use to construct the generator. Two of the GFE items identified in the contract—an exhaust collector and engine mounts—are relevant to this appeal because the Navy ultimately did not deliver those items to BGT. The withdrawal of those items and the Navy's failure to compensate BGT for that withdrawal are the source of the dispute in this case.

The contract incorporated various clauses from the Federal Acquisition Regulation ("FAR"). For convenience, we cite to the FAR when referencing those contract clauses. One such clause, the "government property" clause, provides as follows in relevant part:

(d) Government-furnished property .

(1) The Government shall deliver to the Contractor the Government-furnished property described in this contract....

(2) The delivery and/or performance dates specified in this contract are based upon the expectation that the Government-furnished property will be suitable for contract performance and will be delivered to the Contractor by the dates stated in the contract.

(i) If the property is not delivered to the Contractor by the dates stated in the contract, the Contracting Officer shall, upon the Contractor's timely written request, consider an equitable adjustment to the contract.

...

(3)(i) The Contracting Officer may by written notice, at any time—

(A) Increase or decrease the amount of Government-furnished property under this contract;

...

(C) Withdraw authority to use property.

(ii) Upon completion of any action(s) under paragraph (d)(3)(i) of this clause, and the Contractor's timely written request, the Contracting Officer shall consider an equitable adjustment to the contract.

...

(i) Equitable adjustment . Equitable adjustments under this clause shall be made in accordance with the procedures of the Changes clause. However, the Government shall not be liable for breach of contract for the following:

(1) Any delay in delivery of Government-furnished property.

(2) Delivery of Government-furnished property in a condition not suitable for its intended use.

(3) An increase, decrease, or substitution of Government-furnished property.

48 C.F.R. § 52.245-1.

To summarize, subsection (d)(1) of the government property clause requires the Navy to deliver the designated GFE; subsection (d)(2)(i) provides that the Navy "shall consider" an equitable adjustment if it does not deliver the designated GFE by the agreed-upon date; subsection (d)(3)(i) gives the Navy the right to modify its GFE commitments; and subsection (d)(3)(ii) provides that the Navy "shall consider" an equitable adjustment if it modifies those GFE commitments. Separately, subsection (i) requires that equitable adjustments be made according to the procedures in the contract's changes clause. Subsection (i) also provides that neither the Navy's modifications to its GFE commitments nor its untimely delivery of GFE will constitute a breach of the contract.

The contract incorporates the standard FAR changes clause for fixed-price contracts, 48 C.F.R. § 52.243-1. The fixed-price changes clause covers the Navy's modifications to the method of shipment, the method of packing, the place of delivery, and the "[d]rawings, designs, or specifications" for specially manufactured items. Id. The clause provides that if the Navy makes any of those modifications, the contracting officer "shall make an equitable adjustment." Id.

The contract also incorporates a changes clause from outside the FAR that defines "authorized changes" for the entire contract. That clause is unique to the Naval Surface Warfare Center Carderock Division and is referred to as the NSWCCD changes clause. It states as follows:

(a) Except as specified in paragraph (b) below, no order, statement, or conduct of Government personnel who visit the Contractor's facilities or in any other manner communicates with Contractor personnel during the performance of this contract shall constitute a change under the "Changes" clause of this contract.

(b) The Contractor shall not comply with any order, direction or request of Government personnel unless it is issued in writing and signed by the Contracting Officer, or is pursuant to specific authority otherwise included as a part of this contract.

The NSWCCD changes clause lists the contact information for the contracting officer, Mr. John Stefano, and declares that "[t]he Contracting Officer is the only person authorized to approve changes in any of the requirements of this contract." The clause then warns that "any change at the direction of any person other than the Contracting Officer ... will be considered to have been made without authority and no adjustment will be made in the contract price to cover any increase in charges incurred as a result thereof."

B

We recount the facts according to BGT's factual allegations in its amended complaint, which we accept as true for purposes of the Navy's motion to dismiss. See Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009).

A few months into the contract performance, the Navy procurement team—including Ms. Suzanne Onesti, the procurement manager—informed BGT that the Navy would not deliver the exhaust collector and engine mounts unless BGT provided a "cost savings" to the Navy, i.e., a decrease in the contract price commensurate with the amount BGT would save by not having to procure the exhaust collector and engine mounts on its own. When asked about cost savings at oral argument, neither the government nor BGT identified a contract provision giving the Navy the right to demand a cost savings in exchange for supplying the designated items of GFE.

BGT declined to offer a cost savings for the exhaust collector and engine mounts that were to be provided as GFE. The Navy then notified BGT that the exhaust collector and engine mounts had been reallocated as fleet assets and would no longer be made available to BGT. To continue performing under the contract, BGT purchased those items on the commercial market at a cost of $610,775. BGT then submitted a request for an equitable adjustment for the cost of those items. In early 2017, BGT delivered the completed gas turbine generator to the Navy. The Navy accepted the generator but rejected BGT's request for an equitable adjustment for the cost of the exhaust collector and engine mounts.

According to BGT, the Navy's request for a cost savings and the Navy's final notice of GFE withdrawal were communicated at the direction of the contracting officer, Mr. Stefano. BGT does not allege, however, that the contracting officer issued a signed order concerning either communication.

Instead, BGT alleges facts that circumstantially connect the contracting officer to the GFE negotiations. According to BGT, the Navy instructed BGT to direct all communications to Navy employees Ms. Onesti and Ms. Carolyn McCloskey, "the conduits to the larger Navy team." BGT also alleges that it was the "usual course of performance" for the contracting officer's decisions to be communicated through Ms. Onesti or Ms. McCloskey. For example, Ms. Onesti communicated a directive that BGT should use its own testing data to size the water treatment system for the gas turbine. Mr. Stefano later acknowledged that "when Ms. Onesti advised BGT that [the Navy] agreed that the water test results provided by BGT were to be used in sizing water treatment system for the [turbine], it could be construed as being tantamount to acceptance and authorization to proceed with the contractor's intended revisions."

Furthermore, according to BGT, the contracting officer must have directed the Navy's communications regarding the exhaust collector and engine mounts because he was the only person with authority to withdraw those GFE items and reallocate them as fleet assets. Relatedly, BGT alleges that the contracting officer "knew or should have known" of the Navy's request for a cost savings and the Navy's threatened withdrawal of GFE because BGT communicated those issues in progress reports that were regularly distributed to the contracting officer.

C

BGT organized its amended complaint into five counts. Two of those counts, Counts IV and V, are not at issue in this appeal.

A fair reading of the allegations in Counts I through III reveals five possible grounds for relief: First, the complaint alleges that the Navy's decision to withdraw the exhaust collector and engine mounts constituted a constructive change of the GFE provision for which BGT is entitled to an equitable adjustment. Although the contracting officer did not issue a signed order...