{"id":898454,"date":"2021-02-03T13:58:23","date_gmt":"2021-02-03T20:58:23","guid":{"rendered":"https:\/\/www.myconstructionexpert.com\/blog\/?p=898454"},"modified":"2021-02-03T13:58:23","modified_gmt":"2021-02-03T20:58:23","slug":"request-for-equitable-adjustment","status":"publish","type":"post","link":"https:\/\/www.myconstructionexpert.com\/blog\/request-for-equitable-adjustment\/","title":{"rendered":"Govt\u2019s Failure to Grant REA Can Constitute Breach of Contract"},"content":{"rendered":"\n

Aron C. Beezley and Sarah Sutton Osborne | Buildsmart<\/a><\/p>\n\n\n\n

The U.S. Court of Appeals for the Federal Circuit, in\u00a0BGT Holdings LLC v. United States<\/em>, recently held that the government does not have the discretion to deny a contractor\u2019s request for equitable adjustment (REA)<\/a> under Federal Acquisition Regulation (FAR) 52.245-1 (Government Property) where the conditions specified in that clause are present and the contractor is able to show financial loss. As discussed below, the Federal Circuit\u2019s decision in this regard is a welcome development for government contractors because the court\u2019s basic reasoning extends to all FAR clauses that direct that the government \u201cshall\u201d or \u201cmust\u201d consider or make an equitable adjustment if the conditions set forth in the applicable FAR clause are present.<\/p>\n\n\n\n

The Facts<\/strong><\/h2>\n\n\n\n

BGT Holding LLC filed a complaint with the U.S. Court of Federal Claims alleging, among other things, that the U.S. Navy breached its contractual duty to provide BGT an equitable adjustment after failing to deliver government-furnished equipment (GFE) that the Navy had agreed to deliver to BGT. The Court of Federal Claims dismissed BGT\u2019s complaint, finding that BGT\u2019s claim in this regard was precluded by the terms of the contract. BGT then filed an appeal with the U.S. Court of Appeals for the Federal Circuit.<\/p>\n\n\n\n

On appeal, the Federal Circuit specifically addressed BGT\u2019s claim that the Navy breached FAR 52.245-1 by failing to provide an equitable adjustment for the Navy\u2019s non-delivery of GFE. The Federal Circuit noted that two subsections of FAR 52.245-1 govern GFE non-delivery by the government. First, under subsection (d)(3)(i), the contracting officer \u201cmay, by written notice, at any time \u2014 (A) Increase or decrease the amount of government-furnished property under this contract.\u201d In such a case, subsection (d)(3)(ii) directs that the contracting officer \u201cshall consider an equitable adjustment.\u201d Second, under subsection (d)(2)(i), if the GFE \u201cis not delivered to the Contractor by the dates stated in the contract, the Contracting Officer shall \u2026 consider an equitable adjustment.\u201d<\/p>\n\n\n\n

The government argued on appeal that BGT\u2019s claim under subsection (d)(2)(i) is untenable because the contracting officer was required only to \u201cconsider<\/em> BGT\u2019s request for an equitable adjustment \u2014 not to grant the adjustment to BGT.\u201d (emphasis added). Under the government\u2019s theory, the phrase \u201cshall consider\u201d gave the contracting officer discretion to grant or deny an equitable adjustment and imposed no duty to grant an adjustment, even if BGT could prove financial loss due to the government\u2019s non-delivery of the GFE.<\/p>\n\n\n\n

The Federal Circuit, however, rejected the government\u2019s argument, stating:<\/p>\n\n\n\n

We reject the government\u2019s interpretation of the term \u201cshall consider\u201d because it would produce absurd results under the government property clause. . . . <\/em>To illustrate, assume that the committed GFE in this case had a total value nearing $5 million, well over half of the contract price of $8.25 million. See <\/em>J.A. 24-25. If the Navy had withdrawn all GFE, as the contract allows, it would be implausible to posit that the Navy\u2019s only obligation would be merely to \u201cthink over\u201d BGT\u2019s request for an equitable adjustment before denying it. It is dubious, to say the least, that the drafters of the FAR\u2019s government property clause, 48 C.F.R. \u00a7 52.245-1, envisioned that the government would essentially have an unfettered right to withdraw promised GFE from a contract without consequence.<\/p>\n\n\n\n

The Federal Circuit went on to state:<\/p>\n\n\n\n

The correct interpretation of \u201cshall consider\u201d in this contract setting does not give the government absolute discretion, but instead holds the government to a duty of good faith and reasonableness. . . . Moreover, the FAR demands that the contracting officer exercise impartiality, fairness, and equitable treatment when considering requests for equitable adjustments. See <\/em>48 C.F.R. \u00a7 1.602-2 (\u201cContracting officers shall . . . (b) Ensure that contractors receive impartial, fair, and equitable treatment; . . . .\u201d). The government\u2019s interpretation of \u201cshall consider\u201d would invite subversion of that responsibility.<\/p>\n\n\n\n

Accordingly, the Federal Circuit vacated the dismissal of BGT\u2019s claim that the Navy breached its duty to provide an equitable adjustment after it failed to deliver the GFE. The Federal Circuit directed that, on remand, the Court of Federal Claims \u201cmust determine whether BGT is entitled to an equitable adjustment as fair compensation for the failure to deliver those GFE items.\u201d<\/p>\n\n\n\n

The Takeaway<\/strong><\/h2>\n\n\n\n

The Federal Circuit\u2019s decision in BGT Holdings LLC v. United States<\/em> highlights the government\u2019s duty of good faith and reasonableness in addressing government contractors\u2019 REAs. Where the FAR makes equitable adjustment available as relief to a contractor facing certain conditions, the government does not have the discretion to ignore a contractor\u2019s request for adjustment and, instead, has a duty of good faith and reasonableness not only to consider but grant such relief where due.<\/p>\n\n\n\n

This is a welcome development for contractors because the Federal Circuit\u2019s reasoning discussed above extends to all FAR clauses that direct that the government \u201cshall\u201d or \u201cmust\u201d consider or make an equitable adjustment if the conditions set forth in the applicable clause are present. Accordingly, we will likely see contractors rely on the Federal Circuit\u2019s holding in BGT Holdings LLC <\/em>to argue that the government committed a breach of contract by failing to grant the contractor an equitable adjustment under a variety of clauses. For instance, the Federal Circuit\u2019s basic reasoning may apply to the following FAR clauses, each of which states that the contracting officer shall make an equitable adjustment when certain conditions are present:<\/p>\n\n\n\n