The Court of Appeals for the Federal Circuit reversed a decision holding the award of timber sale contracts breached the government’s implied duty of good faith and fair dealing because the duty did not apply to pre-award conduct. Although a pre-auction notice informed prospective bidders environmental litigation could delay award and the timber contracts included a suspension provision, the Court of Federal Claims held it was unreasonable for the government to have awarded three contracts without informing the contractor of the specific litigation risks applicable to the contracts ( 53 CCF ¶79,077). The government appealed the CFC’s holding the government’s failure to inform the contractor of the litigation "amounted to a breach of its implied duty" of good faith and fair dealing.
The Federal Circuit disagreed, stating the government "could not have breached the covenant of good faith and fair dealing by its pre-award conduct because the covenant did not exist until the contract was signed." The duty of good faith and fair dealing applies to the performance and enforcement of a contract but not the formation of a contract. The court also rejected reliance on the superior knowledge doctrine to support the CFC’s breach holding. The doctrine only applies if "the government was aware the contractor had no knowledge of and had no reason to obtain such information" and "any contract specification supplied misled the contractor or did not put it on notice to inquire." Here, the pre-auction notice put the contractor on notice the contracts were "currently under litigation and award may be delayed." Although the government did not disclose the plaintiffs in the environmental litigation had identified the contracts as being "at risk," the government did not mislead the contractor, and the notice the contracts could be suspended "was far more explicit than notices found sufficient in other cases." ( Scott Timber Co. v. U.S., CA-FC, 56 CCF ¶79,888)