In government contract interpretation disputes, adjudicative forums may rely on extrinsic evidence of the parties’ prior course of dealing to interpret ambiguous terms. In this context, prior course of dealing refers to a sequence of previous conduct between the government and the contractor which can be fairly regarded as establishing a common basis of understanding for the purposes of interpretation. When the parties have interpreted the disputed terms in a certain manner in a previous contract, those terms are typically presumed to hold the same meaning in a later disputed contract, absent clear evidence of changed intent or the parties’ disagreement at the time of contract formation. Furthermore, for the parties to be bound by their prior course of dealing, they must have actual knowledge of the conduct and be aware that it can reasonably be construed as indicative of their common understanding or intentions. In such cases, after determining the existence of an ambiguity, the claims adjudicative forum may rely on prior course of dealing evidence to assign meaning to the disputed terms.

In Armed Services Board of Contract Appeals (ASBCA) No. 60448, issued on June 24, 2020, the Board determined that the contractor was entitled to an equitable adjustment as the parties’ prior course of dealing had established a common basis of understanding regarding the ambiguous terms. The U.S. Air Force issued the three underlying contracts for the production and delivery of Advanced Medium Range Air-to-Air Missiles (AMRAAM). The contracts were part of a series of annual contracts issued for over more than two decades under which the contractor delivered a specified number of missiles each year. As relevant to the interpretation dispute, the statements of content (SOCs), which are similar to statements of work, for the three contracts each contained two paragraphs that the Board determined were ambiguous. The first paragraph, SOC 2.a, required the contractor to produce a specified number of missiles (or lot) over a three-year period of performance. Meanwhile, the second paragraph, SOC 2.b, required the contractor to provide Systems Engineering/Program Management (SEPM) support for a one-year performance period.

The interpretation of government contracts begins with the plain language of the contract, with meaning assigned to all clauses within the context of the contract as a whole. When contract language is susceptible to more than one interpretation falling within the zone of reasonableness, an ambiguity exists that may be resolved by considering extrinsic evidence. If the ambiguity is still not resolved, the doctrine of contra proferentum is applied for interpretation. Under the doctrine, the ambiguity is resolved in favor of the non-drafting party, which is typically the contractor. However, for contra proferentum to apply, the ambiguity must be latent rather than a patent ambiguity. That is, the ambiguity must not be so glaring or obvious as to place upon the non-drafting party the duty to inquire before contract formation. Under this exception to the contra proferentum doctrine, if the non-drafting party fails to timely inquire about a patent ambiguity, the ambiguity is resolved against it. Furthermore, contractors seeking application of contra proferentum must show that they relied on their reasonable interpretation of the ambiguity in developing their offer.

The government has an implied duty to disclose information during the solicitation phase that is vital to the development of pricing or performance under the contract. If the government fails to disclose such vital information, it may be held liable for breach of contract under the superior knowledge doctrine. To be successful in such claims, the contractor must present specific evidence that it: (1) undertook performance without vital knowledge of a fact that affects performance costs or duration; (2) the government was aware that the contractor had no knowledge of and had no reason to obtain such information; (3) any provided specification either misled the contractor or did not put it on notice to inquire; and (4) the government failed to provide the relevant information. If the contractor produces evidence that satisfies these four conditions, the government is deemed to be in breach of contract for nondisclosure of vital information, and the contractor may recover damages for any resulting delays or increased costs of performance.

In Marine Industrial Construction, LLC v. United States, 158 Fed.Cl. 158 (2022), the Court of Federal Claims (COFC) held the government liable for withholding vital information impacting contract performance and costs. The U.S. Army Corps of Engineers (USACE) had awarded the contract in question for hydraulic dredging at the Quillayute River Waterway in La Push, Washington. The agency procured dredging services for the waterway every two to three years, with the 2014 solicitation in question markedly different from previous years. A portion of the waterway known as the boat basin, which had not been fully dredged since 1982, was added to the scope of the 2014 solicitation. Additionally, in an effort to shift from design-based specifications to performance-based specifications and to increase competition, the government removed warnings that the waterway may contain man-made debris, such as sunken boats, fishnets, machinery, and steel trolling wire. The solicitation also specifically stated that the government had no knowledge of any artificial obstructions, wreckage, or other materials that would require additional equipment for economical removal.