Thursday, July 23, 2015

The Doctrine of Superior Knowledge

Under the doctrine of superior knowledge, the Government has a duty to disclose critical information to potential contractors to prevent them from pursuing a ruinous course of action. Failure to do so may be a breach of a contractual duty.

The elements of proof of such a breach are;

  1. the contractor undertook performance without the vital knowledge
  2. the government was aware that the contractor did not have the knowledge and had no reason to seek it
  3. the information that was supplied misled the contractor or did not put it on notice to inquire, and
  4. the government failed to provide the relevant information
In a recent ASBCA (Armed Services Board of Contract Appeals) decision, this doctrine was put to the test. A contractor bid on and won a contract to operate concession stands on an Air Force base. Soon after contract award, it was evident that the contractor was losing a lot of money on the operations. It filed a claim on the basis that the Government did not disclose superior knowledge when it was preparing and submitting its proposal in response to the solicitation.

On July 12, 2011 (a date prior to contract award), the contractor requested the Air Force to provide it monthly financial statements for the previous contract for the past 12 months (presumably that would mean July 2010 through June 2011). The Air Force provided financial statements from a different 12 month period. It provided financial statements for fiscal year 2010 (October 2009 through September 2010) as that data was the most recent data available to the Air Force. The Air Force however did not tell the contractor that the data was from a different 12 month period than that requested.

The contractor argued that had it seen the financial statements for the requested 12 month period, it would have seen that the predecessor contractor was losing money and would not have bid on the contract.

The ASBCA however ruled that the different time-frames did not cause the problem. The problem was rooted in the contractors misinterpretation of the data that was provided. 
In this appeal, prior to bidding, appellant requested current financial information regarding performance of the prior contract and received accurate financial information but for an earlier undisclosed period. Appellant thought the data was "odd" but made no further inquiry. Further, it made serious misinterpretations and mistakes with regard to the data supplied by the government.
While it is clear that the government did not provide appellant with data for the time period requested, we cannot hold that this was what induced appellant to bid. Appellant did not properly treat the 40% cost of goods figure, nor did it properly take into account the monthly stipend or the 7% gross sales payments that it was to be responsible for paying to the government.

Therefore, the ASBCA denied the contractors claim. The full decision will be published soon on the ASBCA's website.

No comments:

Post a Comment