Material Breach of Contract – Government Doesn’t Have to Pay | PNWC’s Government Contracting Update

Laguna Construction Company was awarded a government contract in 2003 to perform work in Iraq. After the work was completed, Laguna sought reimbursement of past costs, a portion of which the government refused to pay. Laguna sued the government for these costs at the Armed Services Board of Contract Appeals (ASBCA). The government alleged that it was not liable because Laguna had committed a prior material breach by accepting subcontractor kickbacks, thereby excusing the government’s nonperformance. The ASBCA granted the government’s motion for summary judgment on this ground, and declined to consider the merits of Laguna’s motion. Laguna then appealed to the U.S. Court of Appeals for the Federal Circuit. The Court of Appeals agreed with the ASBCA that Laguna committed the first material breach by violating the contract’s Allowable Cost and Payment clause and affirmed the ASBCA’s ruling.

Source: PNWC’s Government Contracting Update