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Federal Market Intelligence for Small Business |
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Small biz “commercial item” lawsuit could have wider impactA small business that had its U.S. Army contract terminated for convenience has partially won the latest round of its lawsuit against the government objecting to how the company was treated. In a decision in November, the U.S. Court of Appeals for the Federal Circuit in a November decision sided with the small business contractor, JKB Solutions & Services LLC of Norfolk, VA, and sent the case back to the lower court. However, the case has highlighted longstanding concerns with the tangle of government rules regarding commercial item clauses and could have a wider impact on other contracts, legal experts are pointing out. JKB was awarded a three-year IDIQ contract to provide instructors for up to 14 classes a year for military personnel. However, the Army used its own personnel for some courses and paid JKB for only the classes that JKB instructors taught. JKB claimed breach of contract. Both parties agreed it was a noncommercial services contract even though it included a commercial item termination for convenience clause. The Federal Circuit ruled that the government could not rely on the commercial item termination for convenience clause as a defense for incomplete performance in this case, even though the contract included that clause, Arnold & Porter attorneys wrote in an analysis. The case has been remanded to the Court of Federal Claims. However, the government still may win based on the Christian doctrine, the Arnold & Porter attorneys added. The Christian doctrine is the legal principle by which a deeply ingrained policy of procurement law may be considered to be part of a contract, even if it is not explicitly stated in a contract. Other attorneys predict much broader implications. “If taken to its logical conclusion, this remarkable decision would mean that no commercial ‘item’ provision in the FAR applies to services even if incorporated in the contract, effectively overturning a decades-long understanding that the commercial item definition encompasses both goods and services. In one fell swoop, the Federal Circuit effectively eliminated the entire category of commercial services,” Richard Arnholt of Bass, Berry & Sims PLC wrote in a recent blog. However, Arnholt adds that the impact of the ruling may be blunted by the government’s recent redefinition of “commercial item,” in a final rule that went into effect on Dec. 6. “Commercial item” was split into “commercial product” and “commercial service.” Other legal experts say the case also highlights the proliferation of rules about commercial item contracts over the years, resulting in possible gaps in understanding among the judiciary. “We see confusion at work in the decisions of both the Court of Federal Claims and the Federal Circuit,” states an analysis by The Nash & Cibinic Report, published at George Washington U.
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