United States: Government’s Bad Faith Material Breach Justifies Work Stoppage

Last Updated: April 21 2015
Article by J. Christopher Selman

In the recent decision Kiewit-Turner v. Department of Veterans Affairs, the Civilian Board of Contract Appeals ("CBCA"), the judicial body with authority over claims against the non-military agencies of the United States Government, held that the Department of Veterans Affairs ("VA") materially breached its contract with its contractor, Kiewit-Turner ("KT"), by failing to provide a design that could be built for the estimated construction cost at award ("ECCA"). The CBCA ruled that as a result of the material breach, KT was permitted to stop performance.

In August 2010, VA awarded KT an IDC-type contract (integrated design and construct) for preconstruction services on a medical center in Colorado. The contract contained an option for the performance of construction services. The contract was intended to allow KT to review and advise VA on its design, allowing VA to procure additional funds or direct its architect-engineer ("AE") to make changes to meet the ECCA. However, this project was troubled from the start. By the time KT's contract was awarded, the design was 50% complete and funding decisions had been made, limiting VA's ability to make modifications based on KT's input. Throughout the preconstruction phase, KT warned VA and its AE that the design lacked coordination and completeness, was over budget, was over-designed, and that value engineering ("VE") was not being implemented.

Once the design was 65% complete, KT submitted its proposal for construction. KT's proposal price of $609 million was significantly above the established ECCA of $582,840,000 and contained important assumptions and clarifications that KT noted would result in additional costs if not met.

Rather than VA increasing its budget for the contract, VA and KT negotiated a contract modification that required VA to produce a design that could be built for the ECCA. The modification did not specify any set of drawings because, in KT's view, the most recent drawings could not be built for the ECCA. Subsequently, VA provided drawings that it purported to be the 100% drawings. These drawings were incomplete and required substantial supplementation. As KT acquired more information, it became clear to KT that the design could not be built for anywhere near the ECCA. Thereafter, multiple estimates were performed by KT, the AE, and a VA consultant, and every estimate exceeded the ECCA, with KT's last estimate reaching $1.085 billion. The parties engaged in extensive VE efforts, but ultimately VA instructed the AE to disregard the VE options and directed KT to proceed with construction, holding KT to the firm target price established in the contract modification.

KT objected to the direction, started work, and, most significantly, given the extraordinary circumstances, sought declaratory relief from the CBCA as to whether VA had breached its obligation to provide a design that could be built for the ECCA and whether KT consequently had the right to stop construction. The CBCA found that VA had obligated itself to produce a design that met the ECCA and that VA's commitment to do so was "critical" to the agreement. The CBCA found—applying a five-part test—that VA's breach of this obligation was material because (i) KT had been deprived of the benefit of a design that met the ECCA; (ii) KT could not be adequately compensated for VA's breach, in part, because VA did not have sufficient funds allocated; (iii) any forfeiture suffered by VA was limited; (iv) there was little likelihood that VA would cure its breach, given its insistence that it would neither redesign the project nor seek additional appropriated funds; and (v) VA breached its duty of good faith and fair dealing. More specifically, VA failed to control its AE, disregarded VE suggestions and cost estimates, delayed progress of construction, and adopted an estimate developed by the AE as its independent government estimate—an estimate that was "an academic exercise" and that was so far below any previous estimate "as to be of dubious accuracy." The Court rejected VA's argument that KT had waived its right to stop work by obeying the directive, noting that KT continued to work under specific and written protest. In light of the material breach, KT was entitled to stop performance.

This decision strongly reaffirms the Government's duty of good faith and fair dealing in its contracts, and reaffirms a contractor's right to stop work for a material breach. However, the facts of this case were very extreme, with repeated bad faith by VA and a refusal by VA to recognize its own failures. Contracts often afford both parties the right to stop work for material breaches such as a party's non-payment. However, the decision to implement a work stoppage should not be taken lightly, as an improper stoppage could carry serious consequences, such as a termination for default. Any decision to stop work should only be made after careful consideration, including discussion with legal counsel, regarding the basis for, the strength of the basis, and the potential ramifications of a decision to stop work, or to continue work under protest.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions