On September 29, 2023, the Civilian Board of Contract Appeals (CBCA) ruled that a federal contractor could not collect damages from the U.S. Marshals Service (USMS). The contractor’s claim, asserting that it was being sued by former employees as a result of government action, was rejected by the CBCA. The CBCA’s decision in Inter-Con Security Systems, Inc. v. U.S. Dept. of Justice, CBCA No. 6995, suggests that when government action is justified by contract language, a lawsuit filed by a former employee against the contractor is not viewed as a “reasonably expected” outcome. The ruling’s significance for government contractors highlights the CBCA’s approach to interpreting contract terms and what can be considered “reasonably expected” in the aftermath of government action.
The USMS maintains contracts with private companies that provide security officers to federal courthouses. As such, USMS awarded Inter-Con Security Systems, Inc. (Inter-Con) two IDIQ contracts for security coverage back in 2013. Because the security officers have firearm and arrest powers, the contract terms included physical and medical standards that each court security officer (CSO) was required to meet annually from his or her hire date. To conduct medical qualification tests, USMS employed the Department of Health and Human Services’ Federal Occupational Health agency (FOH). CSOs who failed or were overdue for a medical determination could not resume contractual duties until FOH approval.
Between 2014 and 2017, the FOH temporarily and permanently disqualified eight Inter-Con CSOs due to their testing results. Because disqualification rendered the CSOs ineligible to work, Inter-Con fired the CSOs. In response to their termination, the fired CSOs sued Inter-Con alleging violations of the Americans with Disabilities Act and state anti-discrimination laws. Inter-Con chose to settle.
Following its settlement with its former employees, Inter-Con submitted a certified claim to its USMS Contracting Officer for the cost of settlement payments and attorneys’ fees totaling over $1.7 Million. Inter-Con made two arguments in its claim: (1) USMS breached the express terms of its contract by disqualifying physically capable CSOs and (2) USMS breached the implied duty of good faith and fair dealing by subjecting Inter-Con to discrimination suits.
The USMS Contracting Officer denied Inter-Con’s claims. Inter-Con appealed to the CBCA seeking damages for its settlement of disability discrimination charges with its former employees since Inter-Con claimed that USMS’s erroneous disqualification of the employees caused the lawsuit against Inter-Con. Both parties filed cross-motions for summary judgment based on their interpretations of the contract. The CBCA’s decision follows.
The CBCA granted the government’s motion for summary judgment and denied Inter-Con’s motion and appeal. To come to this conclusion, it made three points supported by methods of contract interpretation:
- USMS Had No Independent Duty to Review Medical Qualification Determinations: The CBCA found that USMS had no contractual duty to verify FOH’s qualification determinations. It looked to the plain meaning of the contract, which stated unambiguously that FOH had the authority to make final medical determinations. There was no provision requiring USMS to review or scrutinize FOH’s findings. The CBCA acknowledges that when reading the contract as a whole, other provisions did require USMS approval. However, those provisions invoke USMS approval in response to administrative issues, not medical evaluations. As such, the administrative approval requirements were distinct from the medical qualification process, and USMS did not breach any duty by failing to review the FOH’s determinations.
- Inter-Con’s Interpretation of Qualification Standards Conflicts with Plain Language: Next, the CBCA determined that Inter-Con’s interpretation of qualification standards in the contract conflicted with its plain language. Inter-Con asserted that the contract only required CSOs to “be in good physical condition and not have any physical conditions that would prevent completing job duties,” and that the medical disqualifications were arbitrary because the disqualified CSOs could still perform their duties. The CBCA called this a “reimagining of the contract” and found the contract language provided pages of specific medical standards that informed the FOH’s determinations. The CBCA further rejected Inter-Con’s argument stating that the qualification standards employed both “bright-line tests and qualitative assessments” and thus afforded the FOH physician’s discretion to determine a CSO’s medical status. Therefore, the tests were not arbitrary, nor were the FOH’s disqualifications.
- USMS Did Not Breach the Implied Duty of Good Faith And Fair Dealing: Lastly, the CBCA discussed Inter-Con’s implied duty of good faith and fair dealing argument. Inter-Con argued that “implied duty” requires USMS act in a manner consistent with Inter-Con’s reasonable expectations. The CBCA agreed that this duty applies but responded the USMS contract “expressly authorized FOH to make medical qualification determinations and allowed USMS to adopt those determinations[.] . . . Performing in a manner consistent with contract requirements cannot breach a duty.” Thus, USMS had no reasonable basis to expect that Inter-Con would terminate the medically disqualified employees and that a lawsuit would ensue. No breach of the implied duty occurred.
This decision demonstrates how the CBCA interprets contract provisions and agency delegation, as well as where CBCA draws the line for what can be “reasonably expected” after government action.
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