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Government Not Liable for Suspension of Timber Sales Contracts

The Court of Appeals for the Federal Circuit reversed the Court of Federal Claims' determination holding the government liable for misrepresentation and breach of a series of timber sales contracts, because the contracts did not warrant government compliance with the Endangered Species Act, and the government did not breach its implied duty not to hinder performance. In holding the government's suspension of the contracts upon the listing of the Mexican spotted owl as an endangered species amounted to a breach, the CFC construed the contracts' Protection of Habitat of Endangered Species clause as guaranteeing the government had identified "special measures" necessary to comply with the ESA at the time the parties entered into the contracts (45 CCF 77,800).

No Warranty

According to the Federal Circuit, however, the plain language of the clause did not warrant the government followed any particular procedures or complied with any particular statutory requirements in devising special protective measures. Rather, the reference to the ESA was "best understood as explaining the source of any special measures, rather than as imposing any particular obligations on the [government]." Moreover, by merely acknowledging the ESA was relevant to the contract and lacking explicit language incorporating the ESA, the clause did not incorporate the ESA by reference. This interpretation was consistent with Scott Timber Co. v. U.S. (CA-FC 2003) 47 CCF 78,088, which held an identical provision did not create an implied warranty "as to measures actually taken" by the government. As the court concluded in Scott Timber, the clause disclaimed any explicit or implicit suggestion the listed special measures were complete, unchanging, or adequate. Moreover, the detailed reimbursement scheme triggered by a modification put the contractor on notice the listed protection measures were subject to change.

No Bait-and-Switch

The CFC also held the government breached its implied duty not to hinder performance because it extended the suspension when it delayed compliance with a court order to consult on measures to protect the Mexican spotted owl. This holding was also erroneous. The plain terms of a contract clause authorized the government to unilaterally suspend operations to comply with a court order. Therefore, for the government's response to the court order to violate the implied duty of good faith and fair dealing, the government's actions had to "involve some variation on the old bait-and-switch." That is, the government's actions had to be specifically targeted at the contractor's contract rights and be designed to reappropriate a contract benefit accorded the contractor. However, the government's delay in complying with the court order and its ESA violations had only an incidental effect on the contracts, and there was no evidence the government acted with the purpose of delaying or hampering the contractor's performance. In addition, uninterrupted contract performance was not a "benefit" guaranteed by the contracts, because the contracts clearly stated their provisions could be modified, suspended, or even canceled to comply with the ESA. The contractor therefore had no reasonable expectation its contracts would not be affected by a listing of a new endangered species. (Precision Pine & Timber, Inc. v. U.S., CA-FC, 54 CCF 79,256)




(The news featured above is a selection from the news covered in the Government Contracts Report Letter, which is published weekly and distributed to subscribers of the Government Contracts Reporter. )


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