In a recent decision from the Armed Services Board of Contract Appeals (ASBCA), the Board held that an agency justifiably withheld payment after four of the contractor's officers and employees were indicted for conspiring to defraud the Government by providing, soliciting, and accepting kickbacks in return for awarding subcontracts–and two of the four (the vice president for operations and program manager) pled guilty. Although the outcome itself is not surprising, the basis of the ASBCA's opinion is. In its motion for summary judgment, the contractor argued that the Government's disapproval of 14 invoices was unsupported and constituted a breach of contract. The ASBCA held that even if the contractor were correct, it was not entitled to recover because the contractor was the first party to commit a material breach of the contract—which occurred when it breached the implied covenant of good faith and fair dealing through its employees' criminal conduct. It is curious that the Board relied on the covenant of good faith and fair dealing instead of a statutory provision, such as the anti-fraud provisions of the Contract Disputes Act, or a provision from the contract itself.

Armed Services Board of Contract Appeals, ASBCA

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