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Federal Circuit Clarifies That Contractors Do Not Have to Show “Specific Targeting” to Establish a Government Breach of the Implied Duty of Good Faith and Fair Dealing

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Last week the Federal Circuit delivered an early valentine to contractors through its decision in Metcalf Construction Co., Inc. v. United States, 2013-5041 (Fed. Cir. Feb. 11, 2014).  This decision provides much-needed clarity regarding the standard a contractor must satisfy to prove that the Government has violated its implied duty of good faith and fair dealing.  As we previously reported, the Federal Circuit’s 2010 Precision Pine  and 2012 Scott Timber II  decisions utilized a “specifically targeted” test – instead of the previously well-established “reasonableness test” – to determine whether a breach of this duty occurred.  This arguably added a scienter requirement for determining breach of the implied duty, making it significantly more difficult for contractors to prevail on this type of claim.  Although the Scott Timber II decision provided hope to contractors, this hope hung on the balance of a single footnote in that decision, which suggested that the “specifically targeted” test might apply only in narrow circumstances.  Now in Metcalf, the Federal has confirmed this is the case, expressly holding:  (1) that a contractor did not need to show that it was the victim of “specific targeting,” except in very limited circumstances; and (2) that the Government can breach the implied duty even if its action did not violate an express term of the parties’ contract.  This decision should help resolve the inconsistent treatment this issue has received in recent decisions by the U.S. Court of Federal Claims and the boards of contract appeals, as well as the very heated debate within the Government contracting community on this issue over the last several years.  Although this decision is a major boost to contractors, because Precision Pine has not been overruled, we believe that  the Justice Department still may continue to assert that the Precision Pine standard should apply.  Thus, there will remain a need for careful and skilled analysis and briefing of the implied duty issue in future cases before the Court of Federal Claims, the boards, and the Federal Circuit.