New Federal Circuit Decision Addresses Applicability Of Commercial Item Termination For Convenience Clause To Noncommercial Service Contracts

• Published date: 09 December 2021
• Subject Matter: Government, Public Sector, Government Contracts, Procurement & PPP
• Law Firm: Arnold & Porter
• Author: Ms Kara Daniels, Amanda J. Sherwood and Nicole A. Williamson

A new Federal Circuit decision, JKB Solutions & Services, LLC v. United States, held that the government could not rely on the commercial item termination for convenience clause-FAR 52.212-4-as a defense for incomplete performance in a noncommercial service contract that expressly included that clause.¹ The Federal Circuit reversed the holding of the Court of Federal Claims (COFC)² that the government could constructively terminate what all parties agreed was a noncommercial services contract based on the commercial item termination for convenience clause. Although on remand, the lower court may still rule in favor of the government based on the Christian doctrine, the Federal Circuit's analysis offers contractors an avenue to argue against the applicability of clauses appearing in their contracts if it is possible to devise a reason the clauses should not apply to their work.

Contractual and COFC Background

JKB Solutions (JKB) and the Army entered into a three-year indefinite-delivery/indefinite-quantity (IDIQ) contract for JKB to provide instructor services for military personnel. The contract specified that JKB would provide instruction for up to 14 classes per year and required the Army to issue a task order for each ordering period. The Army issued three one-year task orders under the contract; for each task order, the Army used less than the 14-class maximum, and instead used its own instructors to teach some portion of the classes. The Army paid JKB for only the classes the contractor taught and refused to pay the total 14-class price specified in each of the three task orders. The contract incorporated FAR 52.212-4, "Contract Terms and Conditions-Commercial Items," which includes a termination for convenience provision.³ Of note, the parties agreed that the contract was a noncommercial services contract and not a commercial item contract for purposes of summary judgment.⁴ Id. n.2.

JKB filed a claim with the COFC arguing that the government breached the contract when it refused to pay JKB for the full 14 classes allocated for each ordering period. The government first responded that the contract only required it to pay for the number of classes for which JKB actually provided instruction, not the full 14-class maximum,⁵ and later argued that it had in fact constructively terminated the contract for convenience (so, the contractor's recovery was limited to termination for convenience costs).⁶ The government argued in the alternative that even if the...