Shutterstock_2206514397.jpg

Recovery Under the Doctrine of Superior Knowledge

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.

Related Insights

TLF-Contract-Claims-Insight-14.jpg

Government officials often direct contractors to perform contract work in a specific manner not detailed in the contract. If such orders increase the scope of performance beyond the specifications of the contract, they may be construed as constructive changes. While such orders are generally given on the belief that they naturally fall within the scope of performance, they may nevertheless expand the scope of performance beyond the stated specifications. In such situations, contractors may be entitled to compensation for constructive change even if the accompanying government directive expressly states that it is not meant as a change order. Upon receipt of such directives, contractors must compare the new requirements with their existing contract specifications carefully and raise any scope creep issues promptly. Such a proactive approach may prove crucial in avoiding potential disputes and aid the contractor’s arguments in case of litigation.

Additional performance specifications not previously described in the contract may have the effect of increasing the scope of performance and add to costs incurred by the contractor. In such cases contractors may file a claim for increased costs. Such a claim was before the Armed Services Board of Contract Appeals (ASBCA) in ASBCA No. 49648 pursuant to a contract for grounds maintenance services at the Arlington National Cemetery in Virginia. Under the contract, the contractor was required to furnish all labor, equipment, and materials for grounds maintenance supervision. While the contract specifications prohibited any contractor employees, vehicles, or equipment from infringing upon any government ceremonies or visitations, they did not expressly specify the distance contractor employees would have to maintain to comply with the no-infringement provision. Notably, the government had omitted provisions describing the exact no-infringement distances to maximize competition and avoid artificially high bids.

more
Insight 44 - Substack.jpg

Due to the highly regulated nature of federal government contracts, their formation and administration are governed by a well-defined set of rules. Despite this, government contracts rely on a foundation of mutual trust and cooperation between the government and its contractors. Parts of this invisible layer of obligation are embedded in the implied duties of cooperation, good faith, and fair dealing. Therefore, while related and somewhat interchangeable concepts, these implied duties are inherent to all government contracts and help ensure a successful, productive, and professional relationship between the contracting parties. However, from time to time, the Government may violate these implied duties, giving rise to contractor claims. Understanding these duties empowers contractors to navigate potential issues by identifying causes of action for Government breaches that result in disruption in performance or monetary damages. Therefore, a general discussion distinctly describing these obligations may be helpful to contractors alleging Government violations during contract performance.

o Duty of Cooperation

The Government’s duty to cooperate during the performance phase is as inherent to a government contract as the Government’s right to expect performance in accordance with specifications. Since both parties are required to work together as partners to achieve common contractual objectives, a lack of cooperation during performance by the Government may, and often does, become a source of disputes. When facing scenarios where contractors suspect a lack of adequate cooperation by the Government, they should evaluate the Government’s conduct in the context of the contract’s overall objectives. If the conduct at issue is inconsistent with the Government’s stated mission needs or hinders the contractor’s performance, the Government may be in breach of its duty of cooperation. The Government’s duty to cooperate during performance may be viewed independently by adjudicative forums in accordance with the facts at issue or in contrast with its treatment of other similarly situated contractors. Understanding the government's duty to cooperate empowers contractors to identify potential roadblocks and seek redress for hindered performance.

more
TLF-Contract-Claims-Insight-51.jpg

Contractors may sometimes make mistakes due to erroneous assumptions during the formation of federal contracts. Such mistakes may include an inaccurate assessment of costs, level of effort, or scope of the contract. For certain such mistakes, contractors may be able to obtain relief if the government shares their mistaken belief during the formation of the contract. Federal Acquisition Regulation (FAR) § 14.407-4(a) permits the correction of such mistakes through contract modifications, provided the mistake is not discovered until after award and if other requirements of the section are met. To obtain recovery based on the theory of mutual mistake, the contractor must demonstrate that: (1) the government and the contractor were both mistaken in their belief regarding a fact, (2) that mistaken belief constituted a basic assumption underlying the contract, (3) the mistake had a material effect on the bargain struck by the parties, and (4) the contractor did not assume the risk of the mistake. If successful in proving these elements of mutual mistake, contractors may be able to obtain monetary relief or relief from their obligation of performance on the contract.

Mutuality of Belief

more
Shutterstock_763113187.jpg

The apportionment of risk of increased performance costs in a government contract depends primarily on the type of contract and its included clauses. If a specifically included contract clause assigns the financial risk of an event on either the government or the contractor, that clause usually dictates which party bears the increased costs of performance due to the occurrence of that event. However, even if the contract does not specifically contemplate the occurrence of a particular event, dispute adjudicative forums may look to relevant clauses included in the contract to determine which party must bear the increased costs. A good indicator of whether an included clause apportions the risk of increased performance costs on the government is if the clause points to the contract’s changes clause. In ASBCA No. 62712, a decision issued on October 2, 2024, the Armed Services Board of Contract Appeals (ASBCA) held the government liable for increased costs associated with COVID-19-related quarantine of contractor employees due to a specifically included contract clause dictating the health and safety requirements under the contract. Notably, the relevant clause also pointed to the clause at Federal Acquisition Regulation (FAR) 52.243-4 “Changes,” which was incorporated in the contract by reference.

more

Recovery Under the Doctrine of Superior Knowledge

TILLIT LAW Federal Contract Claims Insights