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Federal Circuit Rules for Agility in Dispute Over Iraq War Contract

Published: 05-03-2017

Agility Public Warehousing Company K.S.C.P. (“Agility”) recently won a significant victory at the U.S. Court of Appeals for the Federal Circuit, which vacated in part and remanded an adverse judgment by the Armed Services Board of Contract Appeals (“ASBCA”) against the company.

The April 4, 2017 decision revives Agility’s $13.4 million claim against the Defense Logistics Agency (“DLA”) for truck trips to deliver food to troops during the war in Iraq. The three-judge panel sided with Agility and determined that the ASBCA erred in failing to consider whether DLA violated the implied duty of cooperation and constructively changed the contract by delaying the return of Agility’s trucks.

The underlying dispute has its origins in 2003, when DLA awarded Agility a “prime vendor” contract to supply and deliver food and related items to U.S. troops stationed in Kuwait and Qatar during the war in Iraq. The first modification of the contract added the Iraq deployment zone and provided for Agility’s trucks to travel into Iraq with military convoys to deliver food to troop sites. The modification also stated that Agility’s trucks would not be used for food storage. A second modification provided daily rates for truck trips.  The government failed to provide adequate cold storage at the sites, however, and Agility’s refrigerated trucks were often held and used for food storage for lengthy periods.

DLA and Agility later agreed to a modification to limit transportation fees to 29 days per trip, and mechanisms were established to expedite the return of Agility’s trucks.  Nevertheless, trucks continued to be held over Agility’s protests. Ultimately, Agility claimed $13.4 million plus interest in compensation for truck trips over 29 days. When DLA denied Agility’s claim, Agility appealed to the ASBCA.

The issues at the ASBCA were whether DLA breached the prime vendor contract, whether DLA constructively changed the contract to allow Agility’s trucks to be used for food storage, and whether DLA breached its implied duty of cooperation. After several years of litigation culminating in a hearing on liability in July 2014, the ASBCA denied Agility’s appeal. The ASBCA concluded that DLA did not breach the express terms of the contract, and the ASBCA also determined that it “need not decide” the issues of implied duty and constructive change.

On appeal, the Federal Circuit agreed that DLA had not breached the contract’s express terms but found that the ASBCA erred in failing to consider the other issues. The Court affirmed in part, vacated in part, and remanded the case to the ASBCA.  The Court explained that a breach of the implied duty does not require a breach of an express contract provision: “A party might breach this implied duty by interfering with another party’s performance or acting in such a way as to destroy the reasonable expectations of the other party regarding the benefits provided by the contract.”

The Court noted that “the government may have breached its implied duty of good faith and fair dealing by, inter alia, interfering with Agility’s ability to perform its duties under the contract by unnecessarily delaying the return of Agility’s trucks and not increasing its on-site food storage capabilities.” The Court also instructed the ASBCA to consider whether DLA constructively changed the contract.

Agility is represented by Michael Charness, John Elwood, Adrianne Goins, Joshua Johnson and Ralph Mayrell.


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Jeremy Heallen Communications Manager

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jheallen@velaw.com

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