November 22, 2006

A recent Court of Federal Claims decision has confirmed the current federal law concerning (1) when a government inspection becomes overly burdensome to a contractor; and (2) when such “burdensome inspections” constitute a breach of the government’s duty to:  (a) exercise good faith and (b) not to hinder contract performance.


The case in point involved the termination for default of a contractor who was frequently behind schedule in its production, as well as in its delivery schedule, for air crewman survival vests.  In addition, the government was forced to reject numerous vests for deficiencies discovered during inspections. 

The contractor countered that the government breached its duties to exercise good faith  and not to hinder performance of a contract by conducting unreasonable inspections and failing to cooperate.  In ruling that the inspections, while thorough, did not rise to the level of bad faith and the hindering of performance, the Court reiterated the key tests necessary to determine when inspections do, in fact, become too burdensome.

One of the keys to this discussion is a general understanding of the standards for the government’s implied duties of “good faith” and “not to hinder performance.”  The Court articulated the distinction between both standards.  Generally, the failure of the government to affirmatively cooperate with a contractor in the performance of a contract serves as a breach for failure to exercise good faith.  However, the duty not to hinder performance is breached when the government commits actions that unreasonably cause delay or hindrance with respect to contract performance.

Interestingly, although the Court decided that the facts in this particular case were insufficient to meet the standards discussed above, it made clear that had the contractor not been so deficient in its performance, the outcome might have been different. 

The Court shed light on this issue by citing previous case law and by outlining the types of government inspections that will be characterized as violating the government’s dual duties of “good faith” and “not to hinder.”  The Court specifically delineated that these duties would be violated in the following examples:  (1) where the inspector acted rigidly and arbitrarily disregarded the inspection plan agreed to by the government’s inspection supervisor and the contractor; (2) where the inspector created new inspection points and procedures which unreasonably inconvenienced the contractor; (3) where the inspector inappropriately spoke with the contractor’s employees regarding product defects; (4) where the inspector engaged in arduous inspections by demanding a higher quality product than required by the contract; and (5) where the inspector failed to promptly inspect the product or refused to allow the contractor to view the inspection procedure. 

G&C COMMENTARY

While the Court in this case declined to find that the strict standards for asserting an “excessive inspection” claim were met, it made clear that a cognizable cause of action does exist given the right set of facts.  However, reading between the lines, the Court made clear that while in theory “excessive inspection” should not be determined by the contractor’s quality of work, but by the government’s misdeeds, the lack of adequate performance by the Contractor might color a courts analysis.  Where the government arbitrarily disregards inspection plans, substantially increases the amount of inspections for no apparent reason or causes unreasonable inconvenience to an otherwise capable contractor, the contractor can and should consider challenging the government’s actions.

Henry L. Goldberg, Esq.,managing partner of Goldberg & Connolly, is a prominent authority in construction law and government contracting. He enjoys a working relationship with the leadership of most contracting agencies in the area.  G&C's Federal Contracts Practice Group assists prime contractors and subcontractors in the competition for and successful performance of federal contracts. We are extensively involved in all phases of government contract procurement - from bid protests to claims prosecution to routine contract administration.  Mr. Goldberg is an active member and supporter of virtually every New York based construction and government contracting industry association and is a frequent speaker at industry events. He has served as chairman of the New York Building Congress’ Public Procurement Committee and the Subcontractor Trade Association’s Public Agencies Committee. He is also general counsel to the NYC Surety Association and past president of the Construction Financial Management Association- New York Chapter and founding Board member and Counsel to the Long Island Chapter. Mr. Goldberg is a board member for the New York Chapter of the National Contract Management Association.

Mr. Goldberg can be reached by email at [email protected]