Federal Circuit Rules for Agility in Dispute Over Iraq War Contract
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 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.