SW Legal Educational Publishing

Contractor Liable for Damages for Not Understanding Contract Specifications
Description Appeals court held that a contractor was liable for the additional costs incurred by the government because they had to find an alternative, higher cost, supplier when, prior to delivery it was discovered that the contractor did not understand the specifications of the contract and was going to supply inferior goods.
Topic Contracts
Key Words Specifications; Failure to Conform; Rescission; Government Contracts
C A S E   S U M M A R Y
Facts The government issued a request for proposals (RFP) for 8800 cases of canned, shelled mixed nuts. Part of the request stated that the nuts were to be "CID A-A-20164," which means not more than ten percent peanuts by weight according to Commerce Department code. Giesler bid on the contract, not knowing what the code meant, and won with a bid of $470,000. The next bid was ten percent higher. Asked if he understood the specifications, Giesler stated that he did and later sent a confirmation that stated that his mixed nuts would be 60 percent peanuts. None of the government buyers noticed this discrepancy. Before shipment, inspectors visited the production site and discovered the nuts did not conform to the RFP. Giesler attempted to renegotiate, but the government cancelled the contract. Giesler sued for damages or to reform the contract or for rescission of the contract. The Court of Federal Claims allowed rescission of the contract based on unilateral mistake. The decision was appealed.
Decision Reversed. Giesler's failure to know what the RFP specifications meant was not excusable, so there could be no rescission, as would be the case if the government knew or had reason to know of the seller's mistake. When that happens the contract may be reformed or rescinded. To bid on such a contract not knowing what the specifications mean is gross negligence and an error in business judgment by Giesler. The government bidding process followed customary procedures. While the government has a general duty to examine bids for mistakes, this duty does not extend to uncover errors contained in later filings by a seller as happened here. Giesler is liable to the government for the added costs incurred in obtaining the nuts at a higher price.
Citation Giesler v. U.S., - F.3d - (2000 WL 1689960, Fed. Cir., 2000)

Back to Contracts Listings

©1997-2001  South-Western, a division of Cengage Learning, Inc. Cengage Learning is a trademark used herein under license.