The government provides contractors with a variety of information during the solicitation process before a contract is awarded. Such information may be furnished through pre-award conferences, questions and answers, solicitation attachments, specifications, diagrams, drawings, contract provisions, etc. When the government misstates material facts during the contract formation process, it may later be liable under express provisions of the contract or for breaching an implied warranty that it furnishes correct information. In this regard, when the government provides incorrect representations and directs or expects prospective offerors to base their contract pricing on those misrepresentations, the government is responsible for any losses the contractor suffers as a result of its reliance on that information. In other words, when the government instructs offerors to base their pricing on data it furnishes, it assumes responsibility for ensuring that the data accurately reflects the conditions the contractor will encounter during performance. In such cases, as long as the contractor can demonstrate that the government’s information was incorrect, it need not prove the government’s intent to deceive or bad faith. Furthermore, the contractor may also not need to prove that the incorrect information was inadequately or negligently prepared.
In Civilian Board of Contract Appeals (CBCA) 2709, a decision issued in June 2013, the Board found the procuring agency liable for the contractor’s damages resulting from its supplying incorrect information and directing the contractor to base its pricing on that information during the solicitation phase of the procurement. The Internal Revenue Service (IRS) awarded the underlying firm fixed-price contract to operate and maintain building equipment at six IRS facilities. The contract required basic services, including facility operation and performance of service calls and repairs. As relevant to the dispute, the request for proposals (RFP) included a technical exhibit that showed three months of actual service call data for the IRS Philadelphia facility, with a distribution of calls by duration. The historical data showed that about 88% of the calls were an hour or less, 11.4% were less than 4 hours, and 0.4% were less than 8 hours. When prospective offerors requested additional information, including historical data covering a longer period for several locations, including Philadelphia, the IRS stated that it had provided all available data, even though the agency had been performing the relevant work itself for the preceding five years. Additionally, the IRS informed offerors that the furnished data provided a reasonable basis to determine the materials and equipment required to support the service call work.
The contractor relied on the government-supplied service call data to prepare its pricing, which the Board later found to be reasonable because the IRS did not contest it. During contract performance, the contractor found that it was spending considerably more time per service call at the Philadelphia facility than noted in the government-furnished technical exhibit. Specifically, the contractor claimed that only 72.3% of the calls were an hour or less, 24.4% were 4 hours or less, and 2.4% were 8 hours or less. Additionally, the contractor reported that 0.7% of the calls lasted 8 to 12 hours, while 0.2% lasted more than 12 hours. Due to this distribution, the contractor stated that, over a two-and-a-half-year period, its actual costs were $480,165 more than its proposed price. In its certified claim, however, the contractor only claimed $308,879, owing to the IRS’s previously expressed concern that the extended time spent on the calls was due to lower skill levels of the contractor’s employees. The lower amount notwithstanding, the contracting officer (CO) denied the claim, citing the firm-fixed-price nature of the contract.
In the appeal that followed, the contractor pointed to the incorrect service call information provided by the IRS in the technical exhibit as the root cause of its costs exceeding its proposed pricing. Meanwhile, the government argued that the contractor had accepted maximum risk and full responsibility for all costs and resulting losses due to the firm-fixed-price nature of the contract. However, the Board disagreed with the government. It began its analysis by noting that the IRS specifically instructed prospective offerors to rely on the information in the RFP’s technical exhibit to determine their costs. In accordance with those instructions, the contractor relied on the technical exhibit’s service call data to develop its pricing, which the IRS did not contest as unreasonable or unrealistic. That is, the Board found that the IRS had directed the contractor to base its prices on material, incorrect representations contained in the technical exhibit, and the contractor did so to its detriment, as its actual cost experience during performance far exceeded its proposed pricing. Under these circumstances, the procuring agency was responsible for the contractor’s losses under the implied warranty that the material information it furnished to the contractor before award was correct. The Board noted that even though there was no special adjustment clause in the contract, the agency’s instructions to the contractor to base its pricing on the incorrect information essentially served the same purpose as such a clause. Consequently, the IRS was found liable for the contractor’s increased performance costs.
The government has an implied duty to provide correct information during the contract formation process. When the government provides material information that is later found incorrect, the contractor may recover any additional costs stemming from its reliance on that information in developing its proposed pricing. In such cases, the contractor need not demonstrate that the government intended to provide incorrect or misleading information during the contract formation phase. Similarly, the contractor need not prove that the information or data provided to it was negligently developed or that its performance was rendered commercially impracticable due to the incorrect data supplied by the government. These cases also differ from superior knowledge cases, in which the contractor argues that the government failed to disclose superior knowledge regarding the relevant aspect of performance. As demonstrated in the above case, the contractor need only show that the information supplied by the government was inaccurate, and that the government either expected or directed it to base its contract prices on that information. Finally, the contractor must also show that it relied on the government-supplied incorrect information to its detriment. In other words, the contractor must demonstrate that its increased costs of performance were due to the government’s incorrect information. Once proven, the contractor may recover even in fixed-price settings and in the absence of a special adjustment clause or other similar express contract clauses.
This Federal Contract Claims Insight is provided as a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or Contact Us to determine how the law would apply in a specific situation.