The Overseas Logistics Group (“OLG”) sued the Department of Defense for breach of contract in the U.S. Court of Federal Claims over a contract to lease vehicles to DoD. The contract originally required the government to repair the vehicles to the condition in which it had received them. After a modification, the contract then required the government to either pay for repairs resulting from normal wear and tear or, if repairs would cost 75% or more of the actual value of the vehicle, to reimburse OLG for the actual value of the vehicle, less depreciation. OLG claimed that the government breached the contract by returning leased vehicles to OLG in damaged condition, and neither repaired them nor paid OLG for the cost of repairs. Additionally, OLG argued that the government breached the contract by forcing OLG to sign short-term leases of less than one year, contrary to the minimum one-year provision in the contract.
The government countered that despite a provision requiring it to repair leased vehicles, a different contract provision limited the government’s liability to damages from its own negligence. The Court flatly rejected the government’s effort to apply a provision that dealt with damages that occurred prior to the government taking possession of the vehicles, to its liability to repair damages that occurred after it took possession. The government further argued against any recovery by OLG because OLG could seek reimbursement only under a different provision that allowed recovery of the actual value of “totaled” vehicles, but that such recovery is now precluded because OLG failed to invoke the provision sooner. In rejecting the government’s argument, the Court held that if repairs would exceed the vehicle’s value, common sense suggests the lessee should have the option of paying the value instead of repair costs.
On the final issue, OLG argued that the government, by issuing a nine-month lease, breached a contract provision which required all leases issued under the contract to have a term of at least twelve months. The government defended the term of its short-term lease by citing FAR 52.217-8, allowing the government to extend a contract for a short term to ensure continued performance. The Court rejected the government’s expansive application of FAR 52.217-8, because, rather than a stopgap measure, the government was attempting to avoid the terms of the original contract. Overseas Lease Group, Inc. v. The United States of America, COFC No. 11-123C, August 24, 2012.
PRACTICE TIP: Avoid ambiguity in the contract before signing by reviewing both RFPs and contracts as a whole, rather than only considering the meaning of each provision independently.