The “Negligent Negotiations” Theory of Recovery – Is it a Go or No Go at the Boards of Contract Appeal? Part 1

Attention contractors – there is a new theory of recovery to consider! …Or, is there?  Truth is, it might depend on what agency you are doing business with, and where you bring your case.

A trio of interesting – and arguably contradictory – Board of Contract Appeals decisions addressing the “negligent negotiations” theory of recovery opens up potential new avenues of relief for contractors…but leave many open questions.  This theory predicates contractor recovery on the Government’s failure to engage in meaningful discussions during competitive procurements under FAR Part 15.  More specifically, on the Government’s failure to identify for the contractor any significant weaknesses and deficiencies in the contractor’s proposal.  But, is the theory really viable?   In this two-part series, we will take a look at recent case law from the Armed Services Board of Contract Appeals, and recent case law from the Civilian Board of Contract Appeals, and explore what these cases say about contractor’s rights to recover under this new theory.  

This week, we’re taking a look at the 2019-2020 Chugach decisions from the Armed Services Board of Contract Appeals (“ASBCA”).  Let’s dive in!

ASBCA – The Chugach Cases

We will start with a little background on the Chugach cases.  There, NAVFAC (“the Agency”) had released a Request for Proposals (“RFP”) for a fixed-price, indefinite-delivery, indefinite-quantity (“IDIQ”) contract relating to base operations support services at Agency installations throughout the Northwest.  A competitive FAR Part 15 procurement, the RFP provided that offerors would be evaluated on the basis of price and six non-price factors.  The “Basis of Evaluation” included an Agency evaluation concerning the adequacy of offerors’ proposed staffing levels.

In its initial evaluation, the Agency determined that CFSI’s proposed staffing levels were “significantly low” in some areas, and that this constituted a “significant weakness” in CFSI’s proposal.  However, when the Agency later opened discussions with offerors (after establishing a competitive range pursuant to FAR 15.306), it failed to advise CFSI of these perceived inadequacies.  Subsequently, based on Agency revisions to the solicitation, CFSI actually decreased proposed staffing levels.  Still, the Agency said nothing about the inadequate staffing levels; rather, the Agency told CFSI that its “overall recurring work FTEs are within an acceptable range.”  Meanwhile, internally, the Agency had determined that CFSI’s revised proposal “did not adequately address the government’s concern and the significant weakness remained.”  Despite this significant weakness, the Agency ultimately issued an award to CFSI.

After award, as the ABCA explained it, CFSI “struggled to satisfy the Navy’s demands under the contract … the Navy’s actions [had] caused [CFSI] to negotiate staffing levels (and, as a direct result, firm-fixed pricing) for this contract that were materially inadequate and that caused significant losses.”  Accordingly, CFSI thereafter filed a certified claim for roughly thirty-six million dollars, the denial of which CFSI then appealed to the ASBCA. 

Before the ASBCA, CFSI argued that it was entitled to compensation for the significant loss it incurred because of the Agency’s actions during contract formation.  Count I of CFSI’s complaint was premised on what it called a “negligent negotiations” theory.  CFSI argued that, pursuant to FAR 15.306, the Government had an obligation, if it chose to enter into discussions with offerors, to enter into meaningful discussions – i.e. discussions that would advise offerors of the deficiencies and significant weaknesses in their proposals.  CFSI asserted that the Government’s failure to do so was negligent, and resulted in CFSI incurring substantial costs.  This, according to CFSI, entitled CFSI to recover its losses from the Agency. 

The Government moved to dismiss CFSI’s claim for lack of jurisdiction, arguing that CFSI’s negligent negotiations “claim” was, in reality, nothing more than a bid protest, challenging the Agency’s evaluation of CFSI’s bid, not a claim, relating to the performance of a contract.  The Board, in a May 2019 decision, disagreed. The Board reasoned that CFSI was not a disappointed bidder, but rather, an awardee of a contract. The Board further found that the negligent negotiations claim absolutely “related” to the contract.   Reasoning that the regulatory requirements that govern exchanges with offerors under FAR 15.306(d) exist for the benefit of the contractor (and drawing an analogy to previous Federal Circuit precedent) the ABSCA held that an Agency’s violation of FAR 15.306(d) could properly form the basis of a CDA claim.  The Board also noted that CFSI’s Count I “negligent negotiations” claim was in some ways related to its Count II “superior knowledge” claim, which the Board had, in an earlier April 2019 summary judgment decision, declined to dismiss.  (The doctrine of superior knowledge is premised upon the notion that where “the government has knowledge of vital information that will affect a contractor’s performance, the government is obligated to share that information.”) 

This first Chugach decision made it clear that the ASBCA is willing to entertain, and believes it has jurisdiction to hear, claims brought on the “negligent negotiations” theory.   The Board subsequently doubled down on this thinking in a May 2020 decision, when it refused to grant the Government the summary judgment that it sought.  In its summary judgement motion, the Agency argued that CFSI’s negligent negotiations claim must be dismissed because CFSI could not prove that it would have significantly increased its staffing had the Navy alerted CFSI to the “significant weaknesses” relating to inadequate staffing.  The Agency further argued that, while it admittedly had found significant weaknesses in earlier versions of CFSI’s proposal, it did not internally note any significant weaknesses on the later versions of CFSI’s proposal, and therefore had no obligation to tell CFSI of such alleged significant weaknesses.  The Board was not at all persuaded by these arguments.  Reasoning that there was a material factual issue as to whether the Navy properly informed CFSI of the significant weakness, it denied the Government’s motion for summary judgment with respect to Count I.   Though the language of the decision is not entirely clear, this could be interpreted to imply that the Government may be held responsible for its failure to alert contractors, during FAR Part 15 discussions, to any significant weakness or deficiency, whether or not the Government had actually identified such weakness internally. In other words, so long as the weakness/deficiency should have been identified, the contractor should have been alerted.

Taken together, these decisions demonstrate that the ASBCA is willing to hear contractor claims premised on negligent negotiations.  So, what does that mean for you?  Well, if you incur damages during performance of a contract as a result of a significant weakness in your proposal, which the government was aware of, but failed to address with you during FAR Part 15 Competitive Range Discussions, you may very well be able to recover those damages from the Government by asserting a negligent negotiations claim before ASBCA.  It is something you should definitely explore with counsel.

That said, there are still a fair number of open questions relating to this theory of recovery.  Most notably, what, exactly, a contractor must establish to show that the Government “failed to properly inform” the contractor of the significant weaknesses and deficiencies in its proposal?  It is also unclear to what extent this “negligent negotiation” theory might overlap or dovetail with superior knowledge claims.  Finally, it is not yet clear how other forums will react to this theory of recovery, or the underlying rationale espoused by the ASBCA.  Well, at least, we will have to wait and see how the Court of Federal Claims and the Federal Circuit view the issue.  A recent Civilian Board of Contract Appeals (“CBCA”) case, Hamstra Chico LLC, might provide some insight on that Board’s opinion.  But more on that case next time, in part two of our series…

If you have questions about the Negligent Negotiations theory, or any legal theory of recovery relating to performance, REAs or Claims, please reach out to the Obermayer government contracts team.


The information contained in this publication should not be construed as legal advice, is not a substitute for legal counsel, and should not be relied on as such. For legal advice or answers to specific questions, please contact one of our attorneys.

About the Authors

Maria L. Panichelli

Partner

Maria is a partner and the Chair of the Government Contracting department.   She focuses her practice exclusively on federal government contracting and procurement, guiding her clients throughout the entire lifecycle of their...

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Michael A. Richard

Associate

Michael is an attorney in Obermayer’s Government Contracting Department, where he excels at getting clients to the settlement table. Michael’s tenacity is truly a force to be reckoned with. Over the past...

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