A recent United States Court of Federal Claims decision may have made it more likely that government contractors can successfully challenge a termination for convenience. The Government has wide latitude to terminate contracts for its own convenience pursuant to the Federal Acquisition Regulation (FAR), and it is notoriously difficult for contractors to demonstrate that the Government’s termination was improper. However, in TigerSwan, Inc. v. United States, 110 Fed. Cl. 336 (2013), Judge Firestone held that a government contractor had successfully demonstrated the elements of a claim for wrongful termination.

TigerSwan, Inc. (TigerSwan or Plaintiff) was awarded two contracts to perform security services in Iraq in support of a Department of Defense (DoD) task force established to promote economic stabilization. Following the award, DoD terminated the contracts for convenience and awarded sole-source contracts encompassing the same contract requirements to the incumbent, Aegis Defense Services, Ltd. (Aegis).

TigerSwan filed a breach of contract claim based on wrongful termination for convenience. The Federal Circuit has recognized claims for improper terminations for convenience when an agency terminates a contract in bad faith or when it abuses its discretion in terminating the contract. Krygoski Const. Co. v. United States, 94 F.3d 1537, 1541 (Fed. Cir. 1996). If a contractor successfully demonstrates that a termination was improper, the contractor is entitled to claim common law damages in excess of the limited monetary remedy available under the FAR. See TigerSwan, 110 Fed. Cl. at 345. In practice, there are few meaningful limitations on the Government’s ability to terminate contracts for convenience. It is almost impossible for contractors to prevail on an allegation of bad faith, which requires clear and convincing evidence of intent to injure the contractor. Am-Pro Protective Agency, Inc. v. United States, 281 F.3d 1234, 1239 (Fed. Cir. 2002).

In TigerSwan, the Court of Federal Claims rejected the Government’s argument in its motion to dismiss that an improper termination for convenience claim requires a showing of intent to harm or animus toward the plaintiff. Judge Firestone found that a claim for improper termination based on an abuse of discretion theory has been supported when the Government terminated a contract to get a better price for itself, or when the Government entered into a contract without intending to allow the awardee to perform. See TigerSwan, 110 Fed. Cl. at 347. The Court concluded: “[t]he court reads these precedents to include liability for a breach of contract based on an improper termination for convenience where the government has engaged in some form of improper self-dealing for its own benefit or to benefit another contractor.”TigerSwan, 110 Fed. Cl. at 347.

Applying this standard, the Court concluded that TigerSwan had alleged sufficient facts to demonstrate a potential breach of contract for improper termination for convenience based on the government’s alleged “abuse of discretion” and failure to honor its contract with TigerSwan. Specifically, TigerSwan’s allegations that the Government improperly steered TigerSwan’s contract work to Aegis stated a plausible claim for breach of contract based on an improper termination for convenience. Id.

Although the TigerSwan decision did not assess the merits of Plaintiff’s claim, it may pave the way for government contractors to challenge terminations for convenience. With the drawdown in Iraq and Afghanistan and increased budget pressure on agencies, terminations for convenience may be more probable. By recognizing that TigerSwan had sufficiently alleged that the Government ensured that Aegis would retain the contract work otherwise awarded to TigerSwan, the Court of Federal Claims reinforced the limitations upon Government terminations for convenience.