Tuesday, September 11, 2012

Equitable Estoppel

The following is not legal advice. It is only to familiarize readers with the concept of "equitable estoppel". If after reading this post, you think that it may have applicability to a situation that you are facing, we suggest you contact your legal counsel.

Back in 1987, the Department of Transportation eliminated Rocky Mountain Trading Company from the competitive range in a procurement for IT (Information Technology) equipment because Rocky Mountain failed to submit a timely revised proposal to a contract amendment. Rocky Mountain argued that its proposal was excusably late because its proposal was misdelivered due to an unknown verbal agreement between the United Parcel Service (UPS) and the Government. Under this agreement, all UPS deliveries, regardless of address on the label, were made to DOT's shipping and receiving center which was located in a different building from the delivery location specified in the solicitation for proposals. The Board of Contract Appeals found for the contractor and estopped the Government from asserting that the contractor's revised proposal was late. The Board stated that the Government certainly knew that vendors which selected UPS to deliver bids and proposals are unable to deliver those bids and proposals directly to the depository for sealed offers. The Government knew yet failed to divulge that contractors using UPS could not have their proposals delivered directly to the bid depository as required by the solicitation. The Government knew this because it had a delivery arrangement between itself and UPS. Equitable estoppel was appropriate because the contractor was ignorant of this arrangement and relied upon it to its detriment.

The idea that the Government can be estopped from asserting certain positions has many applications in contract law and in particular, the ultimate allowability of contract costs being challenged by the Government. We foresee many applications of this concept as DCAA begins working off its incurred cost backlog.

Courts and boards have identified four fundamental elements which must always be present for a party to establish a prima facie case of equitable estoppel against the Government.

  1. The Government must know the facts
  2. The Government must intend that its conduct shall be acted on or must so act that the contractor has a right to believe it is so intended
  3. The party asserting the estoppel must be ignorant of the true facts, and
  4. The part asserting the estoppel must rely on the Government's conduct to its detriment.

The Government must know the facts

In broad terms, equitable estoppel requires conduct which amounts to a false representation or concealment of material facts, or at least, which is calculated to give the impression that the facts are otherwise than those which the party subsequently attempts to assert. Such a misrepresentation or concealment can be made by one’s words, conduct, silence or acquiescence. A contractor must establish that the Government knew or should have known the truth about the material fact which it misrepresented or concealed and upon which the contractor relied to its detriment.

The Government must intend that its conduct be acted upon

The second element requires that the Government intend that its conduct be acted on in a manner that the contractor could reasonably believe it so intended. Governmental conduct must be of a character as would induce a reasonable and prudent person to believe that the Government intended its conduct to be acted upon. 

The contractor must be ignorant of the true facts.

The third element requires that the party asserting estoppel must actually rely upon the conduct or statements of the Government. This is another way of stating that the contractor must be ignorant of the true facts. Sometimes, a contractors reliance is considered unreasonable because of provisions in the underlying contract.

The contractor must have relied on the Government's conduct to its detriment.

Finally, a contractor must also prove that its reliance has caused it to suffer an injury. A party must establish that their reliance has placed them in a worse position than they would have been in otherwise. 

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