JKB Solutions and Services, LLC v. United States, 2020 WL 6123087 (10/16/20) (JKB), the Court of Federal Claims held that the Army constructively terminated a contract under the termination for convenience (T4C) clause and denied the contractor any breach damages for the Army’s failure to order the services expected under the contract.
JKB was awarded a three-year IDIQ contract with the Army to provide instructor services for a course developed and managed by the U.S. Army Logistics University. The contract covered three ordering periods and the Army could request up to 14 class instructors per ordering period. (The court noted that the contract was ambiguous regarding the number of class instructors the Army was contractually obligated to order per ordering period, but this fact did not enter into the court’s decision, as will be seen below.)
During the first ordering period, the Army ordered and paid for 9 courses; during the second ordering period the Army ordered and paid for 13 courses; and during the third ordering period the Army ordered and paid for 8 courses. Apparently, the Army used its own employees to teach some of the courses, and this reduced the instructor services needed. The contract contained a T4C clause, FAR 52.212-4(l), but the Army never issued a termination for convenience on the contract.
JKB filed suit at the Court, alleging that the Army breached the contract by failing to pay for 14 classes per ordering period. The Army disagreed, alleging that JKB was only entitled to be paid for the instructor services that were ordered. From the court’s opinion, it appears that neither party raised the issue of a termination for convenience in its pleadings. However, in a status report filed with the court, the Army suggested that the court invoke a constructive termination for convenience and limit any contractor damages to T4C costs. The parties then filed motions for summary judgment.
The Court granted the Army’s motion for summary judgment. The Court noted that the contract and the related orders contained a T4C clause, FAR 52.212-4(l). It reasoned that, although the Army never terminated the contract or the orders for convenience, it had the authority to do so. Moreover, the Army did not reduce the instructor services actually ordered in bad faith, nor was such action an abuse of discretion. The Court concluded that the Army constructively terminated each order for convenience, and accordingly, JKB was limited to the recovery of termination costs under the T4C clause. The Court then denied JKB’s recovery of termination costs because JKB failed to allege these costs, and otherwise failed to provide any evidence supporting them.
This is a perplexing decision for a number of reasons. The Court invoked the T4C clause notwithstanding that neither party raised the applicability of the clause in its pleadings before the court. More significantly, the Court then denied JKB any recovery of termination costs for failure to claim such costs. However, the contract was never actually terminated, and JKB never alleged recovery under the T4C clause. Nor did JKB have reason to expect — when it filed its complaint — that the court would later rely upon the clause. Thus, it had no reason to allege termination costs in the first instance. Will JKB appeal? Stay tuned.
This case reminds us of the government’s extraordinary right to terminate a contract under the T4C clause, which can immunize the government from breach damages when reducing the amount or scope of the work, and which can even be invoked by a court “constructively.” It is a legal reality that must always be considered when contracting with the sovereign.
Hon. Jack Delman served as a judge on the Armed Services Board of Contract Appeals for 29 years and has extensive experience in the adjudication and mediation of large and complex contract disputes, including equitable adjustments, terminations and cost and pricing issues.
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