In a decision issued on November 17, JKB Solutions v. United States, the Federal Circuit held that the commercial item termination for convenience provision at FAR 52.212-4(l) incorporated by reference into a contract for commercial services did not apply because that provision “governs the termination of commercial item contracts for the government’s convenience, and it does not apply to service contracts ….” (emphasis added).
If taken to its logical conclusion, this remarkable decision would mean that no commercial “item” provision in the Federal Acquisition Regulation (FAR) applies to services even if incorporated in the contract, effectively overturning a decades-long understanding that the commercial item definition encompasses both goods and services. In one fell swoop, the Federal Circuit effectively eliminated the entire category of commercial services.
JKB had entered into a three-year ID/IQ contract with the Army for instructor services, under which the Army issued three yearlong task orders. The price of each task order included 14 classes, but each year the Army used JKB for fewer than 14 classes, using Army personnel to teach the balance of the classes, paying JKB only for the classes it actually taught.
As a result, JKB sued for breach of contract. The Court of Federal Claims (COFC) held that the Army had constructively terminated the contract for convenience pursuant to FAR 52.212-4, which was incorporated by reference, and that the termination for convenience had not been in bad faith or an abuse of discretion because the contract was never actually terminated for convenience. In so holding, the court concluded that JKB could only recover its termination for convenience costs, which it had not sought in its complaint. JKB appealed.