When entering federal contracts, the government acts in a proprietary capacity and owes contractors certain express and implied obligations. One such implied obligation is to disclose to the contractor facts and information vital to performance under the contract. Under what is also known as the “doctrine of superior knowledge,” the government may be held liable for breach of contract if it fails to disclose vital information impacting performance costs or duration. Notably, the doctrine of superior knowledge only applies to critical information withheld before the formation of the contract, with a related but distinct implied duty of good faith and fair dealing attaching post-contract formation. Contractors may prove that the government was in breach of contract under the superior knowledge doctrine by producing evidence that they: (1) undertook performance without vital knowledge of a fact that affects performance costs or duration, (2) the government was aware that the contractor did not have knowledge of the information and had no reason to obtain it, (3) any contract specification supplied by the government misled the contractor or did not put it on notice to inquire, and (4) the government failed to provide the relevant information. Thus, when the government violates this implied duty to disclose vital information in its possession pre-contract formation, contractors may assert a breach of contract action by demonstrating that their claim meets these four criteria.

Contractor Undertook Performance Without Vital Knowledge of a Fact that Affects Performance

For the doctrine of superior knowledge to apply, the contractor must begin performance on the contract without being aware of a critical fact that impacts contract performance or duration. Meanwhile, the government must be aware of the critical fact(s), and the relevant information must be unavailable from other sources. If the fact affecting contract performance is available from public sources, the government would likely be under no obligation to volunteer that information, and the doctrine would be inapplicable. Furthermore, the vital information withheld must impact the performance phase of the contract either by increasing the contractor's incurred costs or the duration of performance. Thus, an unexpected increase in the contractor's non-performance-related costs, such as post-performance settlement costs or litigation expenses, may not be recovered under the doctrine.

Government was Aware of the Contractor’s Lack of Knowledge

The doctrine of superior knowledge requires that the government be aware that the contractor is undertaking performance without knowledge of the vital fact(s) affecting performance. The government must also be aware that the contractor had no reason to obtain the information independently. Notably, the contractor’s past experience and expertise in the industry may be relevant to whether the government is reasonably aware of the contractor’s lack of knowledge of the vital fact. For instance, the government’s failure to warn a small business that extensive research and development (R&D) efforts would be required on a fixed-priced small business set-aside contract – where such work is critical to performance, and the contractor has little to no prior experience in such R&D work – would likely cause an adjudicative forum to conclude that the government was aware of the contractor’s lack of knowledge of the vital fact affecting performance.

Any Contract Specifications Supplied by the Government Misled the Contractor

For the doctrine of superior knowledge to apply in situations where the government does provide information or specifications relating to the relevant fact impacting performance – the government supplied information or specifications must be misleading or defective. Additionally, the government-provided information must also fail to put the contractor on notice to inquire about the misleading information or defective specifications. Put another way, the government-supplied information must not trigger the contractor’s duty to inquire before contract formation. Thus, when the government-provided information during the formation phase of the contract misleads the contractor about a vital fact that later adversely affects performance, the government may be held liable under the doctrine of superior knowledge, provided other criteria for establishing liability under the doctrine are also satisfied.

Government Failed to Provide the Relevant Information

Finally, the government must fail to provide the relevant information, making it more difficult for the contractor to perform under the terms of the contract. As previously noted, an important characteristic of a superior knowledge claim is that the government’s duty to disclose superior knowledge attaches before contract formation. Thus, a superior knowledge claim is primarily concerned with the government’s non-disclosure of information before contract formation, making government conduct during contract performance mostly irrelevant. Consequently, to demonstrate government liability under the doctrine, the contractor must establish that the government actually failed to provide the vital information affecting performance costs or duration.

Contractors asserting a breach of contract claim under the doctrine of superior knowledge should be mindful that even though they involve similar principles, the government’s duty to disclose superior knowledge is separate and distinct from its implied duty of good faith and fair dealing, which attaches post-contract formation. The doctrine of superior knowledge is an implied-in-fact contractual obligation requiring the government to disclose, before the formation of the contract, certain vital information affecting performance costs or duration that the contractor is unaware of. In addition to failing to disclose vital information, the government must also typically be aware of the contractor’s lack of knowledge of the relevant information. For the doctrine to apply in situations where the government provides information related to the relevant vital fact(s), the government-supplied information or specifications must have misled the contractor. Finally, the government must actually fail to provide the relevant information. By understanding this overall framework required to establish a breach of contract claim against the government under the doctrine of superior knowledge, contractors can be better positioned to determine the applicability of the doctrine in specific circumstances where the government may have failed to disclose vital facts affecting contract performance before its formation.

This Federal Contract Claims Insight is provided as a general summary of the applicable law in the practice area and does not constitute legal advice. Contractors wishing to learn more are encouraged to consult the TILLIT LAW PLLC Client Portal or Contact Us to determine how the law would apply in a specific situation.