So far this year, the U.S. Court of Appeals for the Federal Circuit has issued opinions in four cases—one per month—involving the implied duty of good faith and fair dealing. The opinions are: Bell/Heery, Metcalf Construction (about which we have previously blogged), Century Exploration, and Lakeshore Engineering. The Federal Circuit obviously feels a need to clarify the application of the law in this area. As part of a lively panel at the Federal Circuit Bar Association’s Federal Practice Summit earlier today, I discussed the use and relevance of the implied duty of good faith and fair dealing—and the court’s analysis of this important doctrine. (My written submission for the panel discussion, with my colleague Michelle Litteken, can be found here.)
The court’s opinions all are based on the assumption that the implied duty of good faith and fair dealing applies to government contracts. But what if the implied duty of good faith and fair dealing did not apply to government contracts, e.g., was disclaimed by the Government? In Northwest, Inc., v. Ginsberg, the Supreme Court recently noted that the implied duty, which historically is a creature of state law, can be disclaimed by the parties in some states.
The implied duty of good faith and fair dealing protects the parties’ “reasonable expectations” regarding the “fruits” of the contract, and it keeps performance focused on their respective obligations—recognizing (as the Government did in Metcalf Construction) that not every performance contingency can be written down. However, the Government may not always see the implied duty of good faith and fair dealing as a benefit and may seek to disclaim it. Contractors should be aware of this view and resist efforts to restrict the application of the duty to their government contracts.