Krygoski Construction Company, Inc. v. United States

Court of Appeals for the Federal Circuit
94 F.3d 1537 (1996)

ELI5:

Rule of Law:

The government may terminate a contract for its convenience when a contracting officer reasonably believes a substantial change in the scope of work necessitates re-bidding to comply with statutory requirements for full and open competition. Such a termination is permissible absent bad faith or a clear abuse of discretion.

Facts:

In 1985, the U.S. Army Corps of Engineers (Corps) awarded Krygoski Construction Company (KrygosM) a contract for $414,696 to demolish an abandoned airfield, which included the removal of an estimated amount of asbestos.
Shortly after the contract was awarded, KrygosM discovered a significant amount of additional asbestos in vinyl flooring not contemplated in the original contract.
KrygosM proposed to remove the additional asbestos at a price that the Corps estimated would increase the total contract cost by approximately $320,000.
The contracting officer, LTC Johnson, determined this scope increase was a "cardinal change" to the contract, as asbestos removal would shift from 10% to nearly 50% of the contract's work.
Believing this cardinal change required a new competitive procurement process under the Competition in Contracting Act (CICA), the Corps terminated KrygosM's contract for the convenience of the government on September 5, 1986, before significant work had begun.

Procedural Posture:

KrygosM sued the United States in the U.S. Court of Federal Claims, alleging breach of contract due to the termination.
The Court of Federal Claims (the trial court) ruled in favor of KrygosM, finding the termination was improper under the precedent of Torncello v. United States.
The trial court awarded KrygosM $1,456,851.10 in damages, which included anticipatory lost profits.
The United States (the Government) appealed the decision to the U.S. Court of Appeals for the Federal Circuit.

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Issue:

Does the government's termination of a contract for convenience constitute a breach of contract when the termination is based on a contracting officer's determination that a significant, unforeseen increase in the scope of work requires re-bidding to ensure full and open competition?

Opinions:

Majority - Rader, Circuit Judge.

No, the government's termination of the contract for convenience did not constitute a breach of contract. The court holds that the proper standard for reviewing a termination for convenience is whether the government acted in bad faith or with a clear abuse of discretion, not the 'change of circumstances' test articulated in Torncello. The Torncello rule is narrowly limited to cases where the government enters a contract with no intention of honoring it. Here, the contracting officer reasonably concluded that the massive increase in asbestos removal constituted a 'cardinal change' outside the scope of the original contract. Terminating the contract to re-solicit bids was a justified action to comply with the Competition in Contracting Act's (CICA) mandate for full and open competition, and thus did not constitute bad faith or an abuse of discretion.

Analysis:

This decision significantly clarifies and narrows the limits on the government's authority to terminate contracts for convenience. By strictly confining the Torncello 'change of circumstances' test to its specific facts (bad faith at the time of contracting), the court re-established the more deferential 'bad faith/abuse of discretion' standard as the prevailing rule. The ruling empowers contracting officers to terminate contracts to address substantial, unforeseen changes in scope that implicate other statutory duties, like the CICA's requirement for full and open competition. This provides the government with greater flexibility in procurement while reinforcing that terminations motivated simply by a desire for a better bargain may still be considered bad faith.

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