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Government Contract Law: The Case of Boston Shipyard Corp. Report

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Updated: Mar 28th, 2022

Key facts

In this case, MSC had contracted BSC to perform an overhaul that was to take 100 days to be complete. MSC was aware that at the time of the formation of the contract, BSC was proceeding with a bankruptcy arrangement yet it signed the contract. However, there were several changes required in the performance. In fact, they were in terms of hundreds and each time any came up, BSC served MSC with a change order. The delays and disruptions MSC worsened the financial conditions of BSC. Eventually, BSC abandoned the contract. MSC sued for termination of the contract for BSC’s breach requiring damages of $9.2 million and it was granted this in summary judgment. BSC appealed first to the district court and later to the Supreme Court, which affirmed the previous courts’ judgments.

The laws in issue here include the Master Agreement for Repair and Alteration of Vessels, and specifically section 13, which advises on Federal Acquisition Regulation (FAR). This clause talks about situations where a contractor can justifiably abandon a contract. In BSC’s argument, it presented several cases for instance, Air-A-Plane Corp., v. United States, 187 Ct. Cl. 269, 408 F.2d 1030 (1969) in which the formulation of the definition of “cardinal breach” took place. Another case was Magoba Construction Co. V. United States 99 Ct. Cl. 662, 690 (1943), which stipulates delays and disruptions as inevitable in the execution of any contract. The discussion and definition of the concept of ‘beyond the contractor’s control’ took place in the Southeastern Airways Corp., v. United States 230 Ct. Cl. 47, 673 F.2d 368, 377-78.

Issues

Can the Boston Shipyard Corporation’s cessation of provision of services constitute justifiable abandonment or is it a breach of contract, justifying the government’s action in termination of the contract? This is in light of the fact that BSC had served MSC with service orders and that MSC knew from the beginning that BSC was bankrupt. Does the knowledge of a contractor’s financial incapacitation not serve as a buffer for legal action? Especially in the event of a breach of contract by the contractor due to the other party’s follies, does it not count as a defense that the other party was aware of the defendant’s incapacities?

Holding of the court

The appellate court affirmed the decisions of the lower bankruptcy and district courts in other words judging in favor of MSC. They upheld the summary judgments, which had found BSC in breach of contract thereby allowing MSC’s termination of the contract to hold.

Court’s rationale or Reasoning for its Decision

The judges reached this decision after taking several legal issues as well as case laws into consideration including Clause 13 of the “Master Agreement”. This clause stipulates that a contractor should “proceed diligently with performance of this contract, pending final resolution of any request for relief, claim, appeal or action arising under the contract, and comply with any decision of the contracting officer.” (Delaney 38) Accordingly, BSC had to continue working until the courts or MSC made a decision on the orders commissioned. It was therefore in breach. Therefore, the appellate court upheld the decision.

On the matter of justified abandonment, BSC’s inference to “cardinal change” as a defense with reference to MSC’s delay and disruptions was denied. The court held that the magnitude of the change orders did not satisfy the requirements of cardinal change, as expected in that type of contract: an “open and inspect” contract with a change clause. Based on ruling, BSC’s financial incapacity had been in effect since before the formation of the contract. Therefore, the claim of MSC’s delay and lack of sufficient payment justified the abandonment stood out as inaccurate. Due to the nature of the contract at hand, one could anticipate the resultant changes, which caused BSC to cease performance of services.

Works Cited

Delaney, John. Learning Legal Reasoning: Briefing, analysis, and Theory. Bogota, NJ: John Delaney Publications, 2004.

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