Our middle child of seven kids suffers from classic Middle Child Syndrome. She has the largest heart in the family, and yet every other minute is a moment of devastation, wrought with feelings of neglect, resentfulness and sadness. We love her and we have empathy, but—like government contractors who sometimes feel burned—there are no devastation damages available.
In Michael Johnson Logging v. USDA, CBCA 5089 (Dec. 22, 2017), a government contractor sought damages, including “business devastation” losses, under a timber sales contract with the United States Forest Department. During performance of the contract, the contracting officer suspended the contractor’s operations three times for a combined total of 27 days. Two times were imposed for cutting the wrong trees and one time was for failure to control run-off and prevent erosion. Notably, the Contractor did not challenge the suspensions at the time they were imposed, but instead took all required steps to remedy the alleged breaches.
In its certified claim to the Government, the Contractor alleged numerous components of damages:
- $741,837 for lost productivity (due to the need to use crooked skid trails and small landings);
- $22,000 for damage to equipment;
- $54,000 for inadequate skid trails;
- $52,600 for unreasonable suspensions of work;
- $91,980 lost profit on unharvested timber; and
- $150,000 business devastation damages.
The Board rejected the Contractor’s claims for business devastation damages, noting that these type of damages are “similar to a consequential damages claim where a contractor asserts that the Government’s actions caused the destruction of its business.” The court concluded:
While contractors may recover damages resulting from “the natural and probable consequences of the breach complained of … damages remotely or consequently resulting from the breach are not allowed.” Ramsey v. United States, 101 F. Supp. 353, 357 (Ct. Cl. 1951). Although not categorically disallowed, contractor claims for consequential damages premised on the destruction of the entire business or lost business opportunities have been denied where they failed to show a nexus between the damages claimed and the breach alleged.
Ultimately, the Board found the profits that the Contractor might have earned independent of the contract were not directly related to the supply contract and, consequently, were merely speculative. The Board concluded that that business devastation claim was be too remote. This case is helpful in understanding the type of damages a government contractor can seek and the type of proof required to proceed on a hearing against the Government. Lost profits from collateral projects or lost net worth are generally too remote to be classified as a natural result of the Government’s breach. While devastating, these damages generally are not recoverable.