Federal Circuit Round Up

A recent decision by the United States Court of Appeals for the Federal Circuit, Promac, Inc. v. Togo D. West, Jr., Secretary of Veterans Affairs, No. 99-1075 (Feb. 8, 2000), demonstrates how a contractor with "unclean hands" can be denied relief for government misconduct.

In this case, a contractor unsuccessfully sought reformation of a contract on which it was enticed to underbid by a contracting officer's improper conduct. In 1995, the Department of Veterans Affairs issued an invitation for bids (IFB) for the construction of a research building in Providence, Rhode Island. At the time the IFB was issued, the VA was only authorized to spend about $2.65 million on the project.

In the first round of bidding, Promac offered to complete the project for $3.1 million - which was both the low bid and reasonable, based on the VA's estimates. However, because the VA had received no additional spending authority, it was unable to move forward with the procurement as currently planned. Although, in such circumstances Federal Acquisition Regulation, (FAR) 14.404-1 requires the cancellation of the IFB and the start of a new acquisition, the contracting officer proceeded to negotiate with the existing bidders on the false ground that their initial bid prices were "unreasonable." In addition, during a telephone call, the CO informed Promac that it should offer a price of around $2.7 million to remain competitive in the procurement - a communication prohibited by the FAR.

Promac submitted a bid of $2.72 million and was awarded the contract. After it completed performance of the contract, Promac filed a claim seeking its original bid price based on the CO's improper conduct in the procurement process. The Department of Veterans Affairs Board of Contract Appeals granted the government's motion for summary judgment. Promac appealed, and the Federal Circuit affirmed.

The Federal Circuit held that the doctrine of unclean hands prevented Promac from seeking reformation of the contract. According to the court, Promac's hands were "unclean" because it actively participated in and benefited from the contracting officer's violations of the procurement regulations. The CO's decision to negotiate the procurement rather than to start anew benefited Promac because the new round of bidding would have been open, rather than limited to the original bidders. In addition, Promac benefited from the CO's disclosure of a target price by adjusting its bid accordingly while other bidders remained in the dark. The court noted that, despite the opportunity to do so, Promac had not complained of the contracting officer's improper conduct at the time the contract was being procured. It therefore could not seek additional compensation after completion of the project.