Court Ruled Feds Terminated Small Contractor Based On 'Hostility'

September 17, 2019
Jonathan Barnes

A little-known case decided earlier this summer could be seen as an important victory for small contractors who work for Uncle Sam. In essence, it says a small contractor can’t be terminated out of anger without solid reasons.
In it, a U.S. Court of Federal Claims nullified a federal agency’s decision to terminate a government contractor for default because the court found the government hadn’t demonstrated cause for doing so. The judge ruled that interpersonal conflicts, bad practices, and ineffective communication on the part of the government clouded its judgement, and then skewed its termination analysis, which resulted after various subcontractor disputes.
The trouble originated with a runway repair project at Buckley Air Force Base in Aurora, Colo., in 2014.
Filed on June 27, 2019, the decision in Alutiiq Manufacturing Contractors, LLC v. the U.S. seems to create a higher threshold for terminating a contractor, say attorneys who reviewed and wrote about the case.
The trouble originated with a runway repair project at Buckley Air Force Base in Aurora, Colo., in 2014. Selected under a 100% small business set-aside, Alutiiq is an Alaska native-owned corporation. The Dept. of Defense’s National Guard Bureau, the agency in charge, and the Alutiiq agreed on a firm fixed price of $13,680,965.
Things didn’t go well, according to the decision.
Bad practices and interpersonal conflicts “created a climate of dishonesty, distrust, and lack of effective communication. This resulted in a default termination, and performance concluded more than a year late on a time-critical project,” stated the opinion, issued by Senior Judge Loren Smith.
Allutiiq started off on the wrong foot with a bad management team, which then delayed the project for a month, Judge Smith wrote. The contractor’s early problems angered the National Guard Bureau’s project managers and Alutiiq replaced its management team and worked to rectify problems, fixing schedule issues and hiring an asphalt subcontractor.
But it wasn’t enough.
The Guard Bureau “gave [Alutiiq]no real chance to implement a more rapid schedule, and its analysis of whether to default [the Contract] ignored important sections of the Federal Acquisition Regulations,” wrote Smith. Most tellingly, the follow-on contractor hired after Alutiiq’s termination “encountered some of the same problems,” he wrote.
The government contract personnel jumped the gun and got rid of Alutiiq while it was trying to make things right and still had a chance to finish close to the contract deadline for completion
“While there were clear deficiencies in [Alutiiq’s] contract performance, those deficiencies would not have been fatal to completion of the contract within thirty days or less of the 400-day performance deadline,” said Smith.
The National Guard Bureau said it will appeal. Alutiiq, a unit of Afognak Native Corp., could not comment because the matter was still being litigated. "We are proud of our 20-plus years of providing exceptional services to the federal government," said Malia Villegas, the parent company's vice president for community investments.
The outcome of the decision appeared to be rooted in legal precedent.
According to a post on the case on the Inside Government Contracts blog, the Court “applied the standard set forth in Lisbon Contractors, Inc. v. United States, 828 F.2d 759 (Fed. Cir. 1997) — under which the government must demonstrate ‘a reasonable belief on the part of the contracting officer that there was no reasonable likelihood that the [contractor] could perform the entire contract effort within the time remaining for contract performance.’
The Court also relied on McDonnell Douglas Corp. v. United States (McDonnell Douglas XII), 323 F.3d 1006 (Fed. Cir. 2003), which clarified that the inquiry is an objective one ‘focus[ing] on the events, actions, and communications leading to the default decision.’
Finally, the Court looked to the factors in FAR 49.402-3(f) that must be considered by a contracting officer prior to issuing a termination for default.
Defects in The Termination
The blog post, by attorneys Alejandro Sarria and Carl Wiersum, noted all the defects Judge Smith cited in the Guard’s reasons for termination.
The first was Alutiiq’s inability to secure an asphalt subcontractor. A “red herring,” Smith wrote, since the eventual asphalt subcontractor said it could meet the Agency’s specifications in about a week.
The next reasons involved personnel gaps and failure to submit records and documents.
Not good enough, however, to justify the agency’s subjective belief that Alutiiq could not complete the project on time, particularly since Alutiiq new management had greatly improved these processes since the beginning of the project.
“The Agency’s determination thus turned on the belief of onsite government personnel that the project was at least 10% behind schedule," wrote Sarria and Wiersum of the decision.
Under both Lisbon and McDonnell Douglas XII, the government “cannot satisfy its burden by merely showing that the contractor was behind schedule.” And the Agency’s personnel, in Smith's opinion, had a “history of dishonesty and hostility” toward the contractor.

Smart Ports of the Future: A Digital Tomorrow
By Max Schwerdtfeger • 17 September 2019, 14:36 BST • Global Trade, Ports and Terminals, Smart Technologies

Ports, terminals and the vessels that carry the world’s goods are critical to the global economy, as is the wave of smart technologies that allow them to answer ever-growing consumer and trade demands.
To meet current and future challenges, a handful of the world’s biggest hubs have invested heavily in smart and exponential technologies to transform themselves into ‘Smart Ports’.
It is a trend of technological innovation that has the potential to redefine cross-border trade and accelerate the seamless movement of products and, potentially, create a truly global collaborative environment.
Port Technology International’s Smart Digital Ports of the Future conference (#SDP19) will bring together the industry’s greatest minds to discuss and debate how to make Smart Ports a reality.
SDP19 will begin with a keynote speech from Allard Castelein, CEO, Port of Rotterdam. Castelein will talk about Rotterdam’s transformation into ‘the smartest port in the world’ and its plans for the future.
Following that, the C-Level Panel: Smart Digital Ports of the Future, will examine key success stories and, in doing so, look at what the future may hold for Smart Ports.
It will include Marco Neelsen, CEO, Port of Tanjung Pelepas, the fastest growing and most technologically advanced port in Asia, Kenneth Lim, CTO, MPA, Mar Chao Lopez, CCO, Port of Valencia, and Carles Rua, CIO, Port of Barcelona.
In short, a ‘Smart Port’ is a port that utilizes the Internet of Things (IoT), Artificial Intelligence (AI), blockchain and big data to make itself more efficient and capable of handling greater volumes of goods.
The technologies that support them are digital, multi-stakeholder systems that support basic infrastructures, such as handling cargo, managing traffic, dealing with customs, maintaining health and safety standards and monitoring waster and energy use.
The smart port phenomenon is driven by three core challenges:
• Operational excellence
• Challenging external market
• New business opportunities
These challenges originate from traditional means of measuring success, such as throughput and, critically, size.
One only need to look at the growth of ports in the Far East to realize the seismic shift the maritime industry has gone through in the 21st century.
China, for example, is home to six out of the ten busiest ports in the world, with Singapore and Busan also present in the list. The regional boom has been so great that even Hong Kong, once the gateway to China, has declined severely in relevance.
Ports in Europe, previously the center of global commerce, can no longer compete on size alone, which means a shift towards smarter operations is imperative.
This is because, while they are significantly smaller, European ports still have to handle greater amounts of cargo.
The global e-commerce industry increases every quarter and consequently, bigger ships must be built to accommodate the growing demand. The market, as ever, makes no allowance for those who don’t keep up.
Double exposure of stocks market chart concept with International Container Cargo ship in the ocean
Where are the world’s major success stories?
The Port of Rotterdam, for example, is aiming to be the world’s ‘smartest’ port and have worked very closely with technology giants IBM to realise its ambitions.
Rotterdam’s journey was a big talking point at Port Technology International’s Smart Ports and Supply Chain Technologies Conference last year and will be so again at SDP19.
There are other notable examples. The ports of Antwerp and Hamburg have both explored the commercial viability of smart technologies, and there are numerous other proposed and initiated ‘smart’ projects in ports and terminals across Europe and Asia.
However, seaports are still largely lagging behind rest of the transport and logistics industry when it comes to developing what Deloitte calls “insight driven solutions.”
This leaves much room for improvement, but vital changes can only come through collaboration and the sharing of ideas among ports and other supply chain stakeholders.
Industry and data analytics concept. GUI (Graphical User Interface).
The major benefit of smart port transformation is to join a wider network of hubs that are equally digitized and ambitious; in short a Smart Port Network.
The best way to begin along this road is to digitize the individual parties and organisation in a single port community.
Once that is successfully done, those said players can connect with each other to form an integrated network of systems, all of whom work in unison to exchange data and improve the efficiency of their collective operations.
This is called a Port Community System and it is key to exchanging data from point to the next, and this is the method by which the benefits of advanced technological solutions – IoT, AI, blockchain, etc – can be gained.
The next logical step, as explained by Jan Gardeitchik, the Port of Rotterdam’s Business Lead for Digital Business Solutions, when he spoke exclusively to Port Technology International in February 2019, is to connect one port community system with another.
This will form the basis of a global logistics chain, in other words a Smart Port Network, which optimizes multitude transport modes and allows all participants to benefit from lower costs and faster delivery speeds, therefore increasing competitiveness and driving further innovation.