Jacobs Engineering Group, Inc. v. United States
The plaintiff Jacob Engineering had inherited a construction and development contract from it predecessor. The contract was to develop and design a gasification facility for the defendant in a military facility. The contract was supposed to be a joint venture between the plaintiff and the defendant. The government was supposed to cover eighty percent of the cost and Jacob Engineering would cover the remaining twenty percent and also receive patent rights. The contract had a termination for convenience clause which stated that the government must reimburse all costs incurred before the termination. Later on, the government decided to terminate the contract because of a shortage in funds.
Upon termination, Jacob engineering submitted that the government should reimburse 100 percent of the costs incurred. The government rejected the proposal and it offered to cater only for eighty percent of the cost. Therefore, Jacob engineering company proceeded to court to contest that decision by the contracting officer.
The court ruled that the termination clause did not in any way invalidate the cost sharing ration. Therefore the cost sharing provision was to be read together with the provision on termination for convenience. Consequently, the court held that only eighty percent of the reimbursable costs were to be paid to the contactor in the event of a termination for convenience. Plaintiff proceeded to apply for an appeal and it was ruled that the decision to pay eighty percent was not justified since the contract was not fully executed. The decision of the appeal directed that Jacob Engineering should be one hundred percent of the reimbursement cost.
The ruling by the appeal court relied on FAR 52.249-6 which provides a distinction between the cost and fee (Callahan 65). The ratio in the provision was for purposes of sharing the cost and not the fees.
In the case, the government lost money because the termination for convenience clause was not well thought out. The clause should have also exclusively stated the fee sharing ration in case of termination.
Callahan, Michael T. Termination of Construction and Design Contracts. Aspen Publishers Online, 2009.