CBCA Addresses Claim for Breach of the Implied Covenant of Good Faith and Fair Dealing

Davis Wright Tremaine LLP

Davis Wright Tremaine LLP

In Michael Johnson Logging v. Department of Agriculture (July 20, 2021), the Civilian Board of Contract Appeals (CBCA or the Board) discussed the government's implied duty of good faith and fair dealing in the context of a timber-sale contract. The contractor alleged that the Government breached that implied duty through its administration of the contract, which interfered with the contractor's ability to productively log the timber.

In addressing the contractor's claim, the Board stated the principles and precedent regarding the implied duty of good faith and fair dealing were well-established:

  • 1. Every contract imposed upon each party a duty of good faith and fair dealing in its performance and enforcement.
  • 2. A failure to fulfill that duty constitutes a breach of contract, as does a failure to fulfill a duty imposed by a promise stated in the agreement.
  • 3. The covenant of good faith and fair dealing includes the duty not to interfere with the other party's performance and not to act so as to destroy the reasonable expectations of the other party regarding the fruits of the contract.
  • 4. The duty not to hinder is a second aspect of the implied duty of good faith and fair dealing.
  • 5. Based on the covenant of good faith and fair dealing inherent in every contract, all parties to a contract are charged with acting reasonably.

In considering such a claim, if the plain language of the contract is unambiguous on its face in addressing the alleged breach of the implied covenant of good faith and fair dealing, the inquiry ends and the contract's plain language controls. In this appeal, the contractor alleged that the government did not permit it to construct straight corridors consistent with industry standards, which hindered its operations in violation of certain implied duties.

The Board disagreed, noting that the contract clearly delineated the requirements for logging corridors ("skid trails"). Further, the Board noted that during project performance, the contractor did not object to these requirements and that the parties worked cooperatively in determining the location of the skid trails. Nor did the evidence introduced at the hearing support the contractor's theory that the condition of the skid trails impacted the contractor's performance.

The Board noted that assertions made without corroboration are insufficient to prove contract interference. In light of the contract's clear terms and the substantial, performance-related information in the record, the Board held that it could not accept the contractor's assertions of interference related to the construction and approval of skid trails. The Board noted that the clear terms of the contract will prevail over expert testimony that industry standards required straight skid trials.

In summary, the implied covenant of good faith and fair dealing provides a basis for a contractor to recover for unreasonable conduct outside the literal language of the contract. However, the contractor must establish that the asserted unreasonable conduct is not within the conduct permitted by the terms of the contract and must also establish that there is evidentiary support for the claim of alleged hindrance or a failure to cooperate.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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