NVS Technologies, Inc. v. Department of Homeland Security

After nearly four years of work on an incrementally funded research and development contract, and six months away from Petitioner’s working prototype of a revolutionary pathogen detection system, the Department of Homeland Security (“DHS”) refused to allot any of the available funds to complete the project based on the internally contradictory conclusions of a new agency official that it was not within DHS’s mission, yet the agency could get a better deal elsewhere. As a result, the contract was terminated for convenience. DHS claimed unfettered discretion to “decide to no longer perform the contract” under the purported authority of a Limitation of Funds (“LOF”) clause that simply protects an agency from liability for contract costs in excess of allotted funds. The Civilian Board of Contract Appeals (“Board”) agreed, and the Court of Appeals for the Federal Circuit summarily affirmed.

1. Can a federal agency refuse to allot available funds to an incrementally funded contract for any reason or no reason, and so terminate that contract, unconstrained by the duty of good faith and fair dealing, and still maintain an enforceable contract supported by consideration?

2. Can a federal agency repudiate its contractual obligations when its justifications for doing so are arbitrary, and unsupported by any evidence, and no reasoned analysis is offered for its supposed redefinition of its mission?