Servant Health, LLC v. United States
21-1373
Fed. Cl.Aug 5, 2022Background
- In early 2021 the VA issued solicitations for "on-hand" nitrile exam gloves requiring delivery to designated DLA warehouses within 45 days; solicitations forbade substitutions, required OEM/distributor documentation, and warned failure to meet the deadline could result in termination for cause.
- Servant Health and Transcendence each were awarded 50 million‑glove contracts; Noble was awarded 25 million; awards were based on specific brands/MPNs and pre‑award technical vetting of submitted documentation.
- Transcendence made no deliveries and, days before its deadline, notified the VA it could not deliver and proposed substitute brands and a lengthy extension; Servant and Noble made partial, unapproved deliveries of differently packaged/sourced gloves and sought extensions or offered substitutes.
- The VA issued show‑cause/cure notices (as appropriate) and terminated all three contracts for default on grounds of non‑delivery/repudiation and unapproved substitution; plaintiffs sued to convert the terminations to convenience and recover damages.
- The court reviewed cross‑motions for summary judgment and held the VA’s terminations were proper: plaintiffs failed to timely deliver, did not establish excusable delay, and the VA was not required to accept post‑award substitutes or breach its implied duty of good faith.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Validity of default terminations (non‑delivery/repudiation) | Plaintiffs: terminations improper; some argued lack of cure (Transcendence) or insufficient cure time (Noble) | Gov: plaintiffs missed firm 45‑day deadlines, failed to deliver contracted items, and repudiated obligations by offering substitutes | Court: Terminations upheld — Transcendence/Servant in default; Noble repudiated; no abuse of CO discretion |
| Excusable delay under FAR 52.212‑4(f) | Plaintiffs: international shipping delays and pandemic (e.g., Suez Canal blockage) excused late performance | Gov: delays were foreseeable and resulted from plaintiffs’ choices to source overseas and secure stock post‑award; contractors bore responsibility | Court: Plaintiffs failed to prove delays were beyond their control or without fault; excusable delay not shown |
| Acceptance of post‑award product substitutions | Plaintiffs: substitutes were functionally equivalent or same OEM; VA should have accepted them | Gov: awards were for specific vetted brands/MPNs/packaging; solicitations forbade substitutions and required pre‑award vetting | Court: VA not required to accept unvetted post‑award substitutes; contracts entitled government to exactly what it contracted for |
| Implied duty of good faith & sufficiency of notices (cure/show cause) | Plaintiffs: VA acted in bad faith by not accommodating substitutes/extending time; Transcendence argued lack of cure notice | Gov: VA clearly communicated 45‑day, no‑substitution rule and reasonably terminated; cure notice not required where time left inadequate or contractor already repudiated | Court: No breach of implied duty; no bait‑and‑switch; cure notice rule inapplicable or unnecessary given timing and repudiation |
Key Cases Cited
- Gen. Injectables & Vaccines, Inc. v. Gates, 519 F.3d 1360 (Fed. Cir. 2008) (failure to make timely delivery establishes prima facie default; burden shifts to contractor to prove excusable delay)
- McDonnell Douglas Corp. v. United States, 323 F.3d 1006 (Fed. Cir. 2003) (court reviews default terminations and surrounding facts; agency discretion reviewed for arbitrariness)
- McDonnell Douglas Corp. v. United States, 182 F.3d 1319 (Fed. Cir. 1999) (termination for default must be related to contract performance)
- Franconia Associates v. United States, 536 U.S. 129 (2002) (contractor’s renunciation before performance date can ripen into breach if promisee elects to treat it as such)
- Lisbon Contractors, Inc. v. United States, 828 F.2d 759 (Fed. Cir. 1987) (government bears initial burden to show contractor was in default)
- Nuclear Research Corp. v. United States, 814 F.2d 647 (Fed. Cir. 1987) (contracting officer must determine termination is in government’s best interest)
- Precision Pine & Timber, Inc. v. United States, 596 F.3d 817 (Fed. Cir. 2010) (limits of implied duty of good faith—no expansion beyond express contract terms)
- Metcalf Construction Co. v. United States, 742 F.3d 984 (Fed. Cir. 2014) (implied duty cannot alter contractually allocated risks and benefits)
- J.L. Malone & Associates, Inc. v. United States, 879 F.2d 841 (Fed. Cir. 1989) (Government entitled to obtain precisely what it contracts for)
- United States v. Brooks‑Callaway Co., 318 U.S. 120 (1943) (contractor cannot rely on listed excuse clauses when its own choices caused the risk)