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In BGT Holdings, Inv. v. United States, No. 1:18-cv-00178-PEC (Fed. Cir. Dec. 23, 2020), the Federal Circuit held that FAR 52.245-1 requires the Government to consider an equitable adjustment when it fails to provide Government-furnished equipment (GFE) required by the contract.  The contract in question required the Government to furnish equipment for the construction and delivery of a gas turbine generator.  After award, the Government stated that it would not provide the contractually-required equipment, unless BGT reduced the contract price.  In response, the contractor purchased the equipment itself, and sought reimbursement under FAR 52.245-1.  FAR 52.245-1 grants the Government the right to change the amount of GFE it provides, but also states that the CO “shall consider” an equitable adjustment under the contract.  The Government did not grant an equitable adjustment, and BGT asserted several theories related to FAR 52.245-1.  The Court of Federal Claims agreed with the Government that BGT’s breach count was insufficiently pled because, under FAR 52.245-1, the contracting officer must only “consider” the equitable adjustment––with any adjustment allowance being discretionary––and thus a decision to deny an adjustment is not a breach.

The Federal Circuit reversed.  First, the Court held that the Government’s interpretation of “shall consider” an equitable adjustment would “produce absurd results” and provide the Government with the “unfettered right to withdraw promised GFE from a contract without consequence.”  The Court remanded for a determination of whether the contractor was “entitled to an equitable adjustment as fair compensation for the [Government’s] failure to deliver those GFE items.”  Second, the Court remanded to the trial court to determine whether the contracting office “ratified” the actions of subordinates who communicated with the contractor about the GFE.  The Court held that the contractor did not “waive” this ratification argument by signing a contract with a Changes clause that admonishes the contractor to only follow the written directions of the contracting officer.  Third, the Court held that the contracting officer can “waive” the Changes clause requirements and thus allow subordinates to give authorized change orders, and the Court remanded on this issue as well.  The Federal Circuit’s decision is an important reminder for contractors that the Government cannot make changes to a contract without ensuring that the contractor is compensated for the impact of those changes.

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Photo of Steve McBrady Steve McBrady

Steve McBrady is a partner and co-chair of Crowell & Moring’s Government Contracts Group. He also serves as a member of the firm’s Finance and Strategic Growth Committees, where he has played a leading role in expanding client service offerings throughout the U.S.…

Steve McBrady is a partner and co-chair of Crowell & Moring’s Government Contracts Group. He also serves as a member of the firm’s Finance and Strategic Growth Committees, where he has played a leading role in expanding client service offerings throughout the U.S., Europe, Asia, and the Middle East.

In recent years, Steve has received the National Law Journal’s “Winning Litigator” award as a lawyer who has “tackled some of the most widely watched cases of the year,” as well as the “D.C. Trailblazer” award, recognizing lawyers who have “made significant marks on the practice.” In 2018, he was named “Government Contracts MVP” by Law360.

Photo of Charles Baek Charles Baek

Charles Baek is a counsel in Crowell & Moring’s Washington, D.C. office, where he practices in the Government Contracts Group.

Charles represents government contractors in both litigation and counseling matters. His practice focuses on contract claims/disputes under the Contract Disputes Act (CDA), litigation…

Charles Baek is a counsel in Crowell & Moring’s Washington, D.C. office, where he practices in the Government Contracts Group.

Charles represents government contractors in both litigation and counseling matters. His practice focuses on contract claims/disputes under the Contract Disputes Act (CDA), litigation before the Armed Services Board of Contract Appeals (ASBCA), federal regulatory and ethics compliance and due diligence, bid protests before the Government Accountability Office (GAO), and False Claims Act (FCA) investigations. His practice also includes state contracting due diligence and litigation before the Court of Federal Claims.

Photo of Michelle Coleman Michelle Coleman

Michelle D. Coleman is a counsel in the Government Contracts Group in Crowell & Moring’s Washington, D.C. office. Michelle advises clients from diverse industries in connection with contract disputes and other government contract matters, including Contract Disputes Act (CDA) claims and requests for…

Michelle D. Coleman is a counsel in the Government Contracts Group in Crowell & Moring’s Washington, D.C. office. Michelle advises clients from diverse industries in connection with contract disputes and other government contract matters, including Contract Disputes Act (CDA) claims and requests for equitable adjustments, fiscal law questions, prime-sub disputes, and bid protests.

Photo of Skye Mathieson Skye Mathieson

Skye Mathieson is a counsel in the Government Contracts Group in Crowell & Moring’s Washington, D.C. office. He works with and advises clients from diverse industries on a wide array of matters, including contract performance disputes (CDA claims and equitable adjustments), cost allowability…

Skye Mathieson is a counsel in the Government Contracts Group in Crowell & Moring’s Washington, D.C. office. He works with and advises clients from diverse industries on a wide array of matters, including contract performance disputes (CDA claims and equitable adjustments), cost allowability issues, defective pricing, fiscal law questions, prime-sub disputes, bid protests, internal investigations, and responding to DCAA audits. Prior to joining Crowell & Moring, Skye spent several years as a trial attorney at the procurement litigation division of the Air Force Headquarters for Legal Operations, where he pioneered the seminal “Laguna Defense” that is now widely raised and litigated at the Boards of Contract Appeals.

Photo of John Nakoneczny John Nakoneczny

John Nakoneczny is an associate in the Government Contracts Group in Crowell & Moring’s Washington, D.C. office.

John represents and counsels contractors from diverse industries on contract disputes and other government contract matters. Prior to joining Crowell & Moring, he clerked at the…

John Nakoneczny is an associate in the Government Contracts Group in Crowell & Moring’s Washington, D.C. office.

John represents and counsels contractors from diverse industries on contract disputes and other government contract matters. Prior to joining Crowell & Moring, he clerked at the Civilian Board of Contract Appeals, where he supported its judges in resolving and mediating appeals under the Contract Disputes Act. John earned his J.D. from The George Washington University Law School, where he was the president of the Government Contracts Student Association and on the Federal Circuit Bar Journal. While in law school, John served as a legal intern at the U.S. General Services Administration and the Fraud Section of the U.S. Department of Justice, Criminal Division. Upon graduation, John was awarded the President’s Volunteer Service Award.

Photo of Matthew Lewis Matthew Lewis

Matthew Lewis is an associate in Crowell and Moring’s Washington, D.C. office, where he works in the Government Contracts Group.

Before coming to Crowell and Moring, Matt clerked at the Civilian Board of Contract Appeals, working on Contract Disputes Act appeals and administrative…

Matthew Lewis is an associate in Crowell and Moring’s Washington, D.C. office, where he works in the Government Contracts Group.

Before coming to Crowell and Moring, Matt clerked at the Civilian Board of Contract Appeals, working on Contract Disputes Act appeals and administrative cases. Matt received his law degree from The George Washington University Law School, where he was awarded a Concentration in Government Procurement Law. During law school, Matt interned at the Civilian Board of Contract Appeals, as well as in the Office of the General Counsel at the Department of Health and Human Services. Prior to attending law school, Matt coordinated international contract manufacturing projects.