That’s Blackmail! Why the Government Cannot Terminate a Contractor for Refusing to Settle a Dispute on Its Terms

In Florida, the government will frequently change the terms of its contracts, usually by adding or deleting the amount or work to be performed, by adjusting the manner of performance, or by making minor adjustments to the type of work to be performed. The government usually has the right to unilaterally do so under the terms of the contract, which will also often contain a formula for pricing the change.  Even when the contract is silent as to how a particular change should be priced, more often than not the contractor and the government will mutually agree on a price for the simple reason that is in both of their interests to do so.

However, this is not always the case and sometimes the parties cannot agree on a price. When the government “actually issue[s] a change order for the additional work, thereby acknowledging that the required work was not within the scope of the original contract” and the contract is silent as to how the change is to be priced, the contractor may “perform the work under protest and later bring suit to recover damages for having been required to perform the extra work for an inadequate price.” C.O.B.A.D. Constr. Corp. v. Sch. Bd. of Broward Cnty., 756 So. 2d 844, 846 (Fla. 4th DCA 2000). Once in a while the government will issue a change order for something not provided for in the contract, and then tell the contractor that if it refuses to accept the change at the government’s proffered price it will be terminated for default.

This is a serious threat, as the contractor could have to pay damages to the government, and would almost certainly have to disclose the fact that it was terminated for default when it bids on other jobs. This disclosure would of course hurt the terminated contractor’s chances of winning those other jobs.  Moreover, most default termination clauses provide that even if the contractor proves in court that it was not in default and that it should not have been terminated, the termination shall be treated as one for the convenience of the government – meaning that a contractor who proves the government breached by wrongfully terminating it cannot collect breach damages.

Life must seem pretty bleak to a contractor who is placed in this unfortunate position. Fortunately, from what we can see it does not happen too often (probably because most people working for the government recognize that doing this is unfair). A contractor who is threatened with a default termination for refusing to settle a contract dispute on the government’s terms does have options. Specifically, the “First Amendment right to petition the government for a redress of grievances includes a right of access to the courts.” Bank of Jackson Cnty. v. Cherry, 980 F.2d 1362, 1370 (11th Cir. 1993) (“BJC”).

In BJC the government and a private firm got into what was essentially a business dispute regarding one of their deals, and when the firm refused to settle it on the government’s terms the government decided to refuse to enter into any other deals with it. The federal trial court enjoined the government, and the Eleventh Circuit affirmed, holding “[t]he record plainly reveals that [the government] used the opportunity to participate in the Florida loan guaranty program as a lever to coerce favorable settlement of the Ferris cow dispute. While such a tactic may be the norm between private parties, it has no place in government. [. . . .] The First Amendment right to petition the government for a redress of grievances includes a right of access to the courts. The law is clearly established that the government burdens this right when it prosecutes an individual solely because that person refuses to release civil claims against the government.” In other words, the government cannot retaliate against a contractor by terminating it for refusing to waive its right to perform changed work under protest and then seek additional payment in court.

Make no mistake, if the contract provides an applicable formula for pricing the work in a change order the contractor must live with it.  But if the contract does not have such a formula, or if the contractor has a good faith basis for claiming the formula does not apply to a specific change order, the government may not threaten the contractor with termination for refusing to agree to the government’s price. If the government does, the contractor should consult counsel about the possibility of filing an action in federal court to enjoin the termination on First Amendment retaliation grounds. The contractor should also consult counsel about the possibility of filing an action for damages under 42 U.S.C. § 1983. Brd. of Cnty. Comm’rs, Wabaunsee Cnty., Kan. v. Umbehr, 518 U.S. 668 (1996) (contractors may sue for damages for First Amendment retaliation under 42 U.S.C.  § 1983).

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