An Uplifting Tale: Crane Supplier Recovers Breach Damages Because Commercial-Item Contract Did Not Incorporate Stop-Work Clause

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In May 2020, Konecranes completed construction of the first of four cranes.
United States Corporate/Commercial Law
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In Konecranes Nuclear Equip. Servs. LLC, ASBCA, Nos. 62797, 62827 (May 7, 2024), the Armed Services Board of Contract Appeals (Board) awarded approximately $4.9 million in delay-related breach damages to Konecranes Nuclear Equipment Services (Konecranes) due to the Navy's breach of its implied duty to not interfere on a commercial-item contract for the provision of 25-ton general purpose portal cranes.

In May 2020, Konecranes completed construction of the first of four cranes. During a subsequent government inspection, the Navy discovered significant damage to the crane's luffing drum. The parties reached different conclusions regarding the root cause of the damage and, in turn, what would be the best solution. While the parties negotiated whether to implement the Navy's proposed corrective action, Konecranes made the correction it deemed necessary in order to continue making progress on the four cranes. The Navy rejected the Konecranes correction, refused to accept delivery of the cranes, and demanded an alternative solution that caused further delay and increased performance costs. In response, Konecranes submitted a non-monetary contract interpretation claim and a separate monetary claim for delay-related costs. The contracting officer denied both claims, and Konecranes timely appealed to the Board.

The Board held that Konecranes proved the cranes met the contract's specifications and that its corrective action fixed the issue that had damaged the first crane. Moreover, the Board held that the Navy's refusal to accept the Konecranes solution and the Navy's demand for an unnecessary alternative solution breached the implied duty not to interfere, caused further delay, and increased Konecranes' costs. To avoid liability, the Navy argued that Konecranes had asserted an unproven constructive suspension-of-work claim. The Navy's brief relied on case law addressing constructive suspensions of work and constructive stop-work orders. But the Board disagreed because the contract contained FAR 52.212-4, Contract Terms and Conditions—Commercial Products and Commercial Services, and did not incorporate the Stop-Work Order, Government Delay of Work, or Suspension of Work clauses. The Board also would not read those clauses into the contract under the Christian doctrine because none of those clauses are mandatory in a commercial-item contract. Instead, the Board held that the Navy's refusal to accept the cranes and its demand for contract changes breached the government's duty not to interfere under the implied duty of good faith and fair dealing. Because of the government's breach, Konecranes was entitled to recover any delay-related damages that it could show with reasonable certainty.

The Board awarded Konecranes its delay damages. But the Board denied damages for estimated future costs noting that, because Konecranes elected to continue performance, Konecranes was pursuing recovery for a partial breach, and, under the partial breach doctrine, Konecranes can recover future estimated costs in a subsequent action once those costs have been incurred.

This decision serves as a reminder of the importance of clear communication during performance and that the Christian doctrine may be considered on a case-by-case basis when evaluating the applicability of clauses that the contract does not expressly incorporate.

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.

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