What Constitutes A Flagrant Disregard For Contract Terms?
Businesses that are government contractors are familiar with the government's enormous amount of discretion. They are also familiar with the burden involved with convincing a court that the government's use of its discretion was wrong; but it happens – with good facts.
In EM Logging v. Dep't of Agric., No. 14-1227 (Fed. Cir. 2015), [button link="http://whitcomblawpc.mystagingwebsite.com/wp-content/uploads/2014/04/EM-Logging-vs.-Dept.-of-Ag.pdf" style="download" color="red" window="yes"]Download Case[/button] the Court of Appeals for the Federal Circuitoverturned the Civilian Board of Contract Appeals and the U.S. Forest Service's decision to terminate a contract for cause because the evidence the federal government relied on wasn't adequate to justify a termination for cause.
Natural resource businesses like oil and gas companies, mining companies, the fishing industry and the timber industry are well aware of the pressure to restrict or cancel decisions to allow natural resources to be developed, especially on federal lands. They are also aware of the myriad of tools and mechanisms available to federal managers and those who oppose responsible development activities.
In this case, the Forest Service had awarded EM Logging a timber sale contract for the Kootenai National Forest in Montana (located near the Idaho-Canadian border and which is one of the few national forests in the country that produces a profit selling timber).
During the course of the federal contract the U.S. Forest Service terminated the contract with EM for cause, accusing EM of flagrantly disregarding the terms of the contract. The U.S. Forest Service specifically accused EM of violating truck load limits, not using designated haul routes and for violating a notification clause that required EM to notify the Forest Service when a load would be delayed for more than 12 hours in reaching a weighing location.
While the Forest Service's decision to terminate the contract was upheld by the Civilian Board of Contract Appeals, the Federal Circuit reversed. It closely examined the facts and found that there was only one instance of route deviation that was necessitated by illness', only one load limit violation and there only two instances of delayed notifications. It determined that none of the alleged violations independently substantiated the finding of flagrant disregard and even if all the supposed violations were combined, there wasn't enough evidence of a pattern of activity demonstrating that EM’s actions were in flagrant disregard of the contract.
There are multiple values to this decision: it is a Federal Circuit decision overturning a federal land management agency decision; it is a contract case that supports a reasonable interpretation of a federal contract's terms and it provides important guidance for businesses related to the importance of record keeping and notices – if EM hadn't been able to marshal its facts to counter the U.S. Forest Service's allegations, the outcome of the case may well have been very different.