Government coercion through duress and contract modification

In Rumsfeld v. Freedom NY, Inc., 329 F.3d 1320 (2003), the government contractor was finally able to procure some relief after a 17 year struggle to rectify the shameful, bad faith tactics of the Defense Logistics Agency. The government’s ACO, Marvin Lieberman, breached the contract by refusing to release authorized progress payments. By withholding these progress payments, the government literally brought Freedom NY to the brink of bankruptcy.

The ASBCA found that the ACO breached the contract each time he withheld or delayed a progress payment to Freedom. The ACO attempted to withhold progress payments so that Freedom would agree to contract modifications releasing the government from all legal causes of action by Freedom. The ASBCA held that withholding progress payments for the sole reason of forcing Freedom to agree to contract modifications is considered duress and invalidates the modifications.

[...] Wade, Under Secretary of Defense, corrected this DLA procurement discrimination by signing a Determination and Finding & on 7 February 1984 ordering DLA to award a contract to FII with a reasonable price differential. This award allowed FII to settle their Federal lawsuit against DLA. The contract awarded to FII represented the contractor’s only business, a fact known to the government. The government agreed to make progress payments in the amount of 95% of incurred costs. All costs were treated as direct. [...]

[...] Another reason government duress is rarely found is that to render a contract unenforceable for duress, the party “must establish that it involuntarily accepted the other party’s terms, circumstances permitted no alternative, and such circumstances were the result of the other party’s coercive acts.” Dureiko v. U.S F.3d (Fed.Cir.2000). In Freedom, the government does not dispute that its withholding of progress payments caused the contractor to agree to Modification 29. The sole question was whether the government’s actions were coercive. [...]

[...] Conclusion The Federal Circuit Court in Freedom made the correct decision in determining there was government duress as to contract Modification 29. The government should not be allowed to act in bad faith and force contractors into bad contracts and contract modifications. The government should be held to at least the same standard of good faith in contract dealings as any party in a general contract. It is not fair to allow the government to act as it pleases and coerce contractors into bad decisions while under government duress. [...]