New government contractors are often surprised to learn that a standard clause in federal contracting gives the government the right to terminate contracts for convenience.  In day-to-day discussions, it is not uncommon for government contractors to think of termination for convenience as equivalent to termination without cause, as opposed to “for cause” termination for default.  However, the Court of Federal Claims’ recent decision in Tigerswan, Inc. v. United States, No. 12-62C (Sept. 18, 2014), reiterates the doctrine that the government’s discretion is not boundless when exercising its right to terminate contracts for convenience.

TigerSwan arose from a security services contract to support the Task Force for Business and Stability Operations in Iraq (TFBSO).  The contracting officer terminated the contract for convenience, and the contractor sought lost profits, alleging a wrongful termination.  The contractor argued that the Department of Defense’s contracting officer abdicated his responsibility to make an independent decision and failed to conduct an independent investigation of the facts, and instead deferred entirely to the TFBSO.  Denying cross-motions for summary judgment, the court wrote that “while a CO is afforded wide discretion, he is still responsible for making an independent decision with regard to a contract” and that “the CO’s failure to make an independent decision weighs in favor of finding an abuse of discretion.”  Although the court did not reach an ultimate conclusion with respect to liability, the contracting officer’s unquestioning reliance on another agency raised significant doubt that the termination for convenience was reasonable and suggested that the termination was the result of an abuse of discretion.

An agency’s decision is normally conclusive in the absence of bad faith or an abuse of discretion.  Caldwell & Santmyer, Inc. v. Glickman, 55 F.3d 1578, 1581 (Fed. Cir. 1995).  However, TigerSwan and other recent cases demonstrate that contractors have options where an agency abuses its discretion in terminating a contract.  See also Gulf Grp. Gen. Enters. Co. W.L.L. v. United States, 114 Fed. Cl. 258, 393 (2013) (holding that the plaintiff was entitled to lost profits where government terminated for convenience “without establishing a legitimate basis for doing so.”).