EthicsCorner

By Dorn C. McGrath, III

The federal government has long imposed unique ethical responsibilities on its employees. Recent convictions surrounding former U.S. Rep. Duke Cunningham’s activities and those of Air Force procurement executive Darlene Druyun show that egregious misconduct by public officials will demand punishment under any standard.

When government conduct did not rise, however, to the level of a crime, contractors who raised ethical issues or issues of good faith in procurement law matters for decades were met with a burdensome legal presumption that government employees can do no wrong.

The sometimes-overreaching assumption that the government always acts in good faith is no longer indisputably the law. Recent court decisions have altered the legal “good faith” presumption that traditionally protected the government and forced contractors to overcome an almost insurmountable burden of proof to show that the government, in fact, had dealt unfairly or unethically in contract or procurement matters.

Previously in government contracts litigation, government contractors charging bad faith by the government needed “well-nigh irrefragable proof” to overcome the strong presumption that government officials always act in good faith. This heavy standard meant contractors alleging bad-faith action or inaction, essentially had to show malice or a specific intent by a government official to injure the contractor. Whether the issue was a government failure to cooperate with the contractor in performance, a termination for default or a claim against the contractor, any improper government conduct was protected by a heavy standard of proof that never shifted the onus back to the government to justify highly questionable conduct.

Recently, faced with conduct that raised serious questions of whether the government was treating contractors fairly, several courts have revisited the historical assumption that the government always acts in good faith. While all courts have not yet adopted a more balanced standard, the trend is pointed very clearly in that direction. This trend is important for contractors contemplating litigation that includes issues of bad faith by government officials.

For instance, in one case, Tecom Inc. v. U.S., the government reportedly threatened the contractor that if it did not stop documenting the condition of government vehicles — a contract requirement — the government would “kill” the project. The contractor sued, alleging that the government’s actions constituted bad faith conduct. In a 51-page opinion, the court reviewed the history of presumptive government good faith and categorized three types of allegations against government decision-making. The court concluded that the degree of deference to the government depends upon the gravity of the allegation.

First, government officials accused of fraud or quasi-criminal wrongdoing in the exercise of official duties still should be accorded strong presumption of good faith that must be rebutted by “clear and convincing evidence.” Second, government officials who perform discretionary duties regarding policies and are accused of a lack of good faith (not fraud or crime) do not get the heavy, clear and convincing evidence “edge.” In those cases, a lack of substantial evidence or gross error would support a contractor’s claim of improper government actions. Third, when the government is not making formal, discretionary policy decisions, but instead simply is acting as a party to a contract, the government gets no special, hard-to-prove-otherwise presumption that it is always cooperating and never hindering a contractor.

This third category marks a breakthrough for contractors confronted by government contracting officials who do not adhere to their implied duties of good faith inherent in every contract. No longer can a government official act with impunity in making contract administration decisions because the reasonableness standard now is the same for both parties. No longer is the government entitled to a preferential presumption. In short, to prove a breach of the duty of fair dealing, a contractor now no longer needs to prove that the government acted in bad faith motivated by ill will. Rather, government actions or inaction will be judged by a reasonableness standard involving the particular contract and the surrounding circumstances.

One guiding principle of the Federal Acquisition Regulation is to “conduct business with integrity, fairness, and openness.” The FAR also requires contracting officers to “ensure that contractors receive impartial, fair, and equitable treatment.” To date, however, ethics scrutiny and ethics codes focus almost exclusively on the government contractor. To apply ethics and the duty of good faith and fair dealing more evenhandedly, a code of business conduct covering both parties to a government contract is under study by a task force of the American Bar Association’s public contract law section. This code, by making fairness and integrity a two way street, would enhance the public’s confidence in our public procurement system by bringing balance to the process. Consistent with recent legal rulings, good faith and fair dealing would be expected of all parties, including contractors, subcontractors, federal, state, and local government contracting officials, and all of their respective agents, auditors, attorneys, and other representatives. No longer will preferential presumptions trump telltale facts.

Actual bad faith by government officials is relatively rare, but it happens, and making government officials accountable when it does occur is essential to the integrity of our procurement system. The developing case law which increasingly measures government contracting officials’ decisions by commercial standards, should encourage government lawyers and procurement officials to approach their dealings with contractors as equals with everyone playing by the same set of rules.

Dorn McGrath is a senior shareholder with the Greenberg Traurig law firm. D. Michael Kelleher, a retired Army brigadier general, provided insights for this article. The opinions expressed here are solely those of the author and are not intended to provide legal advice or represent the view of NDIA or the NDIA Ethics Committee.