Contractor-Client Receives Favorable Legal Decision for Negligent Estimate Claim Versus U.S. Army

One of the attorney-authors’ clients, a Kuwait-based contractor, recently received a favorable legal decision from the Armed Services Board of Contract Appeals (“Board”). The decision is posted here.

The Board’s decision denied a summary judgment motion by the United States Government (USG) which had sought to dismiss our client’s legal claim for negligent estimates. The decision allowed our client’s negligent estimate claim and our client’s own (pending) motion for summary judgment to proceed.

For contractors generally, the decision has expanded the types of contracts the Board recognizes to be subject to a negligent estimate claim. If you are a contractor to the USG and believe the USG’s estimates in your contract were unreasonable and financially harmed you, you should be aware of your legal rights. A contractor-rights attorney could review your particular situation and contract to see if a viable legal claim is available.

More information about our client’s case and decision is below.

Case Overview

Our client’s general allegations are as follows. Our client had a laundry contract with the U.S. Army. Our client’s legal complaint alleges the USG, before the contract was executed, had wrongly and negligently overestimated the number of items to be laundered under the contract. The overestimation of items derived from an overestimated soldier count, i.e. that too high a number of soldiers were contemplated in the USG’s estimates, and as a result, too many laundry items for the soldiers were also estimated for the contract scope of work. Our client alleges the USG had reasons to know, before the contract was executed, that its estimated soldier and laundry counts were too high, yet failed to revise the estimates to reflect the anticipated laundry needs. Unlike the USG, our client did not have access to the Army’s information about plans for soldier numbers, build-ups of soldiers, soldier flow upon an invasion, etc.

Rather, our client relied on the USG’s estimates when developing its offered pricing for the contract. Our client alleges it would not have agreed to its favorable, low contract price had it been given more reasonable estimates of laundry items that reflected the information available to the USG at the time.

When the contract was actually performed, the actual soldier and laundered-item counts were far lower than the USG’s estimates in the contract, causing our client financial losses for the work performed.

Our client’s legal complaint alleges the USG made negligent estimates, and seeks recovery of related financial losses and damages. Our client alleges it lost over $3.4 million USD in lost costs during six months of performing the contract, and that our client should have been paid, overall, more than $5.7 million USD beyond what the USG paid, had the USG originally provided reasonable estimates.

Board’s Decision for Client Contractor Expands Rights of Contractors Generally; Recognizes Additional Type of Contract Subject to Negligent Estimate Claim

The Board’s recent decision denied the USG’s summary judgment motion seeking dismissal of our client’s negligent estimate claim, allowing our client’s claim to proceed.

The Board’s recent decision also found, in an interesting development, that the true (legally-recognized) contract at issue between our client and the USG was a contract created by the ongoing “conduct and performance of the parties” rather than the contract documentation itself. (That documentation contained a mix of some requirements-contract language and some indefinite delivery, indefinite quantity contract language, as well as a fixed base term of six months that the Board deemed inapplicable). The Board found, even though the contract was not a requirements contract or an IDIQ contract, that a negligent estimate claim still applied to this type of contract arising from the parties’ “conduct and performance.”  The Board stated:

… [T]he contract “became valid and binding to the extent that it was performed.” … It is undisputed that [the contractor/client] performed services under the contract, and received payment from the government … Thus, the 09 contract is now “definite and binding” as a result of the “conduct and performance of the parties.” … As a binding contract, it is subject to a claim for breach. The only question is whether it is somehow exempt from the kind of breach claim arising from a negligent estimate.

[The contractor] has presented evidence that it relied on the government’s estimates to establish its item rates, indicating that the prices ultimately paid to it under the binding contract that was formed were driven by those representations … To the extent the estimates underlying the 09 contract’s prices were negligently prepared, and that [the contractor] reasonably relied on them, there is no reason [the contractor] cannot pursue a claim based on that negligence. …

The Board’s decision thus recognized our client’s contract (arising from ongoing “conduct and performance” of the contractor and USG) was a type of contract subject to a negligent estimate claim and that our client’s claim survived the USG’s summary judgment motion and attempted case dismissal.

The motion was the USG’s second summary judgment motion seeking to dismiss the case, both having been denied by the Board. The Board’s recent decision also allowed our client’s summary judgment motion to proceed, and allowed for more information to be submitted in regard to that motion. This decision allows for the possibility our client may later win the case on summary judgment without a hearing (trial).

Contractors’ Legal Rights; Attorney Contact

If you are a USG contractor and believe the USG’s estimates in your contract were unreasonable and financially harmed you, you may have legal rights to pursue remedies for that harm. Please consider contacting the attorney-authors, or another attorney, for review of your situation and contract because you may have viable potential legal options or claims depending on your circumstances.

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