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ASBCA Provides Refresher on Negligent Estimate Claims

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The Armed Services Board of Contract Appeals (ASBCA) recently issued an interesting decision about a negligent estimate claim.  In American General Trading & Contracting, WLL, ASBCA No. 56758, the contractor (AGT) argued that the Army breached the parties’ contract because it “negligently estimated its laundry needs in . . . [five military] camps [in Kuwait], which virtually emptied shortly after award due to the [2003] invasion [Iraq].”  Judge Melnick first commented that the parties’ contract (a firm-fixed unit-priced contract with total item numbers adjustment, and which contained a volume estimate) was neither an indefinite quantity contract nor a requirements contract. (The former contract-type cannot be the subject to a negligent estimate claim, while the letter can.)  And because the contract contained “neither a minimum quantity clause nor a requirements clause, it was not enforceable at its inception since the government was not obligated to take any ascertainable quantity of laundry services.” However, the contract became “definite and binding” as a result of the “conduct and performance of the parties” – AGT performed services pursuant to the contract and the Amy remitted payment. Judge Melnick then found that the volume estimates were material to the parties’ contract and could support a breach claim: “AGT 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 . . . contract’s prices were negligently prepared, and that AGT reasonably relied on them, there is no reason AGT cannot pursue a claim based on that negligence.”  This decision is important because it further cements the principal that the underlying viability of a negligent estimate claim is not based solely on the contract type, but rather on whether the estimate was material to the contract.