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Board's Denial of Equitable Estoppel Reversed

The Court of Appeals for the Federal Circuit reversed an Armed Services Board of Contract Appeals decision holding the contractor was not estopped from rejecting improperly issued delivery orders, because the government satisfied the elements of the correct test for equitable estoppel. The government appealed the board's ruling the contractor was entitled to an equitable adjustment for performing DOs under an indefinite-delivery/indefinite-quantity contract (09-2 BCA 34,150). The disputed DOs were issued as e-mail attachments, which did not comply with the contract's ordering clause. Although the contractor had performed several prior DOs that were also issued by e-mail without objection, the board ruled the government did not establish two of four elements of estoppel established in Rel-Reeves, Inc. v. U.S. (FedCl 1976) 22 CCF 80,492, because the contractor did not appreciate the contract's e-mail restrictions, whereas the government was charged with knowing the contents of its contracts and therefore could not be ignorant of the e-mail prohibition.

Three-Part Test

According to the Federal Circuit, the board abused its discretion in determining the contractor was not equitably estopped from rejecting the disputed DOs based on the ordering clause. The board should have analyzed estoppel under the correct three-part legal test set forth in A.C. Aukerman Co. v. R.L. Chaides Construction Co., 960 F2d 1020 (CA-FC 1992). Applying the Aukerman standard warranted reversal: the contractor's conduct was misleading because it performed 13 e-mailed DOs without objection, the government clearly relied on the contractor's conduct, and the government clearly suffered material prejudice due to the contractor's delayed assertion of its rights under the ordering clause. In addition, the fact the DOs were equivalent to an option exercise and stood on their own as a counteroffer to the original contract did not preclude applying the doctrine of equitable estoppel to ID/IQ contracts. In a dissenting opinion, Judge Newman defended the board's 62 relevant findings of fact and application of precedent as within its discretion and in accordance with law. (Mabus v. General Dynamics C4 Systems, Inc., CA-FC, 55 CCF 79,526)




(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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