K2 Solutions, Inc.
Docket: ASBCA 60907
Decision date: 2017-07-13

ARMED SERVICES BOARD OF CONTRACT APPEALS 
Appeal of--
K2 Solutions, Inc. 
Under Contract No. M67854-1l-C-3015 
APPEARANCES FOR THE APPELLANT: 
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APPEARANCES FOR THE GOVERNMENT: 
ASBCA No. 60907 
Paul W. Bowen, Esq. 
K&L Gates LLP 
Seattle, WA 
Amy M. Conant, Esq. 
K&L Gates LLP 
Washington, DC 
Ronald J. Borro, Esq. 
Navy Chief Trial Attorney 
Matthew S. Hawkins, Esq. 
Stephanie Cates-Harman, Esq. 
Trial Attorneys 
OPINION BY ADMINISTRATIVE JUDGE SWEET 
ON THE GOVERNMENT'S MOTION TO DISMISS AND/OR STRIKE 
This is an appeal of a contracting officer's denial of a claim by K2 Solutions, Inc. 
(K2), alleging that the government breached a contract, and the duty of good faith and 
fair dealing, by reducing a contract's scope of work. The government has moved to 
dismiss portions of the complaint-namely counts two, three, and six-for failure to state 
a claim. 1 The motion is granted as to counts two and three, and denied as to count six. 
STATEMENT OF FACTS (SOF) FOR PURPOSES OF THE MOTION2 
1. On 29 September 2011, the government awarded K2 Contract 
No. M67854-l l-C-3015, which was a contract to provide improvised explosive device 
detector dogs and related services (comp I. irir 4-5). 
1 The complaint does not number the counts. The government assigns such numbers 
in its motion to dismiss. For ease of reference, we adopt the government's 
numbering convention. 
2 For purposes of this motion only, we accept the allegations in the complaint as true. 

2. The contract was for one base year, and two option years (comp I. ~ 8). 
Option year one, if exercised, would commence on 29 September 2012 (id.). 
3. K2 alleges that the government failed to exercise delivery of the full quantity 
of dogs and services during the base year (com pl. ~~ 25-34 ). 
4. On 22 June 2012, the government sent K2 a notice of intent to exercise 
option year one (compl. ~ 37, ex. J). The notice contemplated a reduction in the 
requirements from the original contract (id.). 
5. On 31July2012, the government sent K2 Modification No. POOOlO 
(Mod. 10) (comp I. ~ 39). Mod. 10 "was a unilateral Modification purporting to 
exercise Option Year 1 on terms different than those agreed to by the parties in the 
Contract" (id.). In particular, Mod. 10 "reduced requirements, changed terms within 
certain [contract line item numbers (CLINs)], and issued new SubCLINs for reduced 
amounts" ( compl. ~ 40, see also ex. K). 
6. K2 continued to perform subsequent to the issuance of Mod. 10 (compl. ~ 45). 
7. K2 alleges that, even relative to the reduced quantities ordered in Mod. 10, 
the government 
decreased the amount of work (compl. ~ 50). In particular, K2 alleges 
that the government only paid 63 percent of the original amount awarded in the contract 
for option year one, and 86 percent of the amount as reduced by Mod. 10 (compl. ~ 51). 
8. K2 submitted a certified claim to the contracting officer (CO) on 22 April 2016 
(compl. ~ 58). The CO denied that claim (id.~ 78). 3 
9. This timely appeal followed. 
10. Count one of the complaint alleges that the government breached the 
contract by failing to exercise delivery of all the ordered goods and services during the 
base year ( compl. ~~ 80-93 ). 
11. Count two alleges that the government breached the contract by using the 
exercise of the first option year to reduce the scope of work (compl. ~~ 95, 100-01). In 
particular, count two alleges that the government "attempt[ ed] to unilaterally exercise 
only parts of the Option Year One CLINs by exercising Option Year 1 and then 
immediately deleting portions of the work" (compl. ~ 99). 
12. Count three alleges that the government improperly exercised option year 
one, in violation of the contract, by decreasing the amount of work without providing 
K2 the opportunity to renegotiate the option (compl. ~~ 104-05, 107-08). 
3 The certified claim asserted the same claims raised in the complaint (comp I., ex. T). 
2 

13. Count four alleges that the government breached Mod. 10 by refusing to 
allow for the delivery of all the services ordered under Mod. 10 (comp I. ~ 115). 
14. Count five alleges that the government breached the duty of good faith and 
fair dealing with respect to the base year (compl. ~~ 121-28). 
15. Count six alleges that the government breached the duty of good faith and 
fair dealing with respect to option year one (compl. ~~ 129-38). Count six alleges two 
legal theories. The first theory is that the government breached the contract's implied 
duty by using Mod. 10 to reduce the contract's scope of work, instead of negotiating a 
bilateral modification and price adjustment (id.~~ 130-33). The second legal theory is 
that the government breached Mod. lO's implied duty by failing to exercise delivery of 
Mod. lO's full quantity (id.~~ 134-36). 
DECISION 
I. Legal Standard 
Dismissal for failure to state a claim upon which relief can be granted is 
appropriate where the facts asserted in the complaint do not entitle the claimant to a 
legal remedy. Matcon Diamond, Inc., ASBCA No. 59637, 15-1BCA~36,144 at 
176,407. "To survive a motion to dismiss, a complaint must contain sufficient factual 
matters, accepted as true, to state a claim to relief that is plausible on its face." 
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009) (citation and internal quotations omitted). 
We must accept all factual pleadings as true. Id.; Matcon Diamond, 15-1 BCA 
~ 36, 144 at 176,407. However, we do not accept as true the legal conclusions in the 
complaint. Iqbal, 556 U.S. at 678. A pleading that offers labels and conclusions, or a 
formulaic recitation of the elements of a cause of action will not do. Id. Nor does a 
complaint suffice if it tenders naked assertions devoid of further factual enhancement. 
Id. Moreover, we draw all reasonable inferences in favor of the appellant. Id. While 
the inferences need not be probable, they must be plausible. Id. Thus, the ultimate 
inquiry is whether the complaint alleges sufficient facts to nudge a claim across the 
line from conceivable to plausible. Id. at 680. 
II. Counts Two and Three Fail to State a Claim 
As the government contends, counts two and three alleging that the exercise of 
the option violated the contract by reducing the scope of work fail to state a claim 
because the attempted option exercise was ineffective, so there was no option exercise 
that could have violated the contract (gov't br. at 4-5). "[T]he notice by which the 
power of an option holder is exercised must be unconditional and in exact accord with 
the terms of the option." Holly Corp., ASBCA No. 24975, 83-1BCA~16,327 at 
81, 164 (quoting CORBIN ON CONTRACTS § 264 ( 1963) ). This is so because an option 
3 

is a contract to keep an offer open for a prescribed period of time, which confers upon 
the option holder ( optionee) the right to accept or reject the offer in accordance with its 
terms within the time and in the manner specified in the option. Id. 
Therefore, principles governing acceptance of offers ordinarily apply to the 
exercise of options. Holly Corp., 83-1BCA~16,327 at 81,164. "A notice of 
acceptance that is in any respect conditional or that reserves to the party giving it a 
power of withdrawal is not an operative notice of acceptance." Id. (citation omitted). 
"Thus, we have held that any attempt by the Government to alter the conditions of the 
contractor's obligation ... will render ineffective the purported exercise of an option." 
Id. at 81,165. 
Here, the gravamen of counts two and three is that the exercise of the option 
violated the contract by reducing the scope of work (SOF ~~ 11-12). In support of that 
theory, the complaint alleges that Mod. 10 "reduced requirements, changed terms 
within certain CLINs, and issued new SubCLINs for reduced amounts" 
(SOF ~ 5). 
Assuming that factual allegation is true, the alteration of the conditions ofK2's 
obligations renders ineffective the attempted exercise of the option. Holly Corp., 83-1 
BCA ~ 16,327 at 81,165. Because the government's attempt to exercise the option 
was ineffective, there was no option exercise that could have violated the contract. 
Nor could K2 challenge the non-exercise of the option. Statistica, Inc., ASBCA 
No. 44116, 92-3 BCA ~ 25,095 at 125,126; Pemco Aeroplex, Inc., ASBCA No. 47402, 
95-2 BCA ~ 27,853 at 138,889. 
In an apparent attempt to avoid the conclusion that the attempt to exercise the 
option was ineffective, K2 argues that Mod. 10 initially effectively exercised the option, 
and then immediately modified the contract by reducing the scope of work (app. br. at 4).4 
However, in order to determine whether Mod. 10 initially effectively exercised the option, 
we must look at Mod. 10 as a whole and decide whether it sought to modify the terms of 
the option. Holly Corp., 83-1 BCA ~ 16,327 at 81, 164. As we have stated, "the notice by 
which the power of an option holder is exercised must be unconditional and in exact 
accord with the terms of the option." Id. (emphasis added). Therefore, a document cannot 
both exercise and modify an option because any modification to the terms of an option 
constitutes a rejection of the option. Id. Here, because Mod. 10 allegedly was not in exact 
accord with the terms of the option, it is not reasonable to infer that Mod. 10 initially 
effectively exercised the option (SOF ~ 5). 
Nor does TigerSwan, Inc. v. United States, 110 Fed. Cl. 336 (2013)-upon which 
K2 relies (app. br. at 4-5)-help K2. TigerSwan did not hold that the same document 
can both exercise and modify an option. Id. at 346-4 7. Indeed, TigerSwan did not even 
4 Contrary to the government's argument, the complaint articulates the theory that 
Mod. 10 effectively exercised the option, and then immediately reduced the 
scope of work (SOF ~ 11). 
4 

deal with the exercise of an option, let alone address the issue of whether such an 
exercise was valid. Id. Rather, in TigerSwan, there was a valid agreement-Le., there 
had been mutual assent to the same terms-and then the government terminated that 
agreement for convenience almost two months later through a separate document. Id. at 
340. Therefore, TigerSwan (which is not binding upon us in any event) is not on point. 
Alternatively, K2 argues that the legal effect of the government's attempt to use 
Mod. 10 to reduce the scope of work for option year one was that Mod. 10 constituted a 
rejection of the offer embodied in the option, and a counter-offer, which K2 accepted 
through performance. DeMarco Durzo Development Co. v. United States, 69 Fed. Cl. 
262, 275 (2005) (citing RESTATEMENT (SECOND) OF CONTRACTS§ 59). All that proves 
is that K2 may have a claim for any breach of the new agreement embodied in Mod. 10. 
Id.5 However, K2 asserts that claim in count four, which is not the subject of the motion 
to dismiss or this opinion (SOF ii 13). 
III. Count Six States a Claim 
Count six states a claim for a breach of the duty of good faith and fair dealing. 
Every contract imposes upon each party a duty of good faith and fair dealing in its 
performance and enforcement. Metcalf Constr. Co. v. United States, 742 F.3d 984, 
990 (Fed. Cir. 2014). The duty includes a duty not to interfere with the other party's 
performance, and not to act so as to destroy 
the reasonable expectations of the other 
party regarding the fruits of the contract. Id. 
In particular, a "bait and switch" breaches the duty of good faith and fair 
dealing. Teresa A. Mc Vicker, P.C., ASBCA Nos. 57487, 57653, 12-2 BCA ii 35,127 
at 172,463. A bait and switch occurs when the government awards a significant 
contract benefit to a contractor, only to improperly eliminate that benefit soon 
thereafter. Id. 
Here, the government moves to dismiss count six insofar as it alleges that the 
government breached the option's implied duty before the government ineffectively 
exercised the option (gov't br. at 6). Neither of the two legal theories asserted by count 
six alleges that the government breached the option's implied duty before the 
government ineffectively exercised the option (SOF ii 15). The first theory alleges that 
the government breached the contract's implied duty (id.). The second legal theory 
alleges that the government breached Mod. lO's implied duty when it reduced Mod. lO's 
scope of work (id.). 
5 Alternatively, K2 may have a claim under count four for cost plus profit for the work 
it performed during option year one. Holly Corp., 83-1 BCA ii 16,327 at 
81,165; Lockheed Martin Corp., ASBCA No. 45719, 00-2 BCA ii 31,025. 
5 

While Mod. 10 was an ineffective exercise of the option, it plausibly also 
constituted a new offer that K2 accepted through performance. DeMarco, 60 Fed. Cl. 
at 275. As with all agreements, any new 
agreement would impose a duty of good faith 
and fair dealing after it became effective. Metcalf, 742 F.3d at 990. Count six alleges 
that the government breached that duty after Mod. 10 became effective by reducing 
Mod. lO's scope of work (SOF ~ 15). Because count six does not allege that the 
government breached the option's implied duty before the government ineffectively 
exercised the option, the government's motion to dismiss count six is denied. 
CONCLUSION 
The partial motion to dismiss is granted in part, and denied in part. Counts two 
and three-which correspond to paragraphs 94 through 109 of the complaint-are 
dismissed for failure to state a claim. 
Dated: 13 July 2017 
RICHARD SHACKLEFORD 
Administrative Judge 
Acting Chairman 
Armed Services Board 
of Contract Appeals 
6 
JAMES R. SWEET 
Administrative Judge 
Armed Services Board 
of Contract Appeals 
I concur 

I certify that the foregoing is a true copy of the Opinion and Decision of the 
.A.nned Services Board of Contract .A.ppeals in .A.SBC.A. No. 60907, .A.ppeal ofK2 
Solutions, Inc., rendered in confonnance with the Board's Charter. 
Dated: 
7 
JEFFREY D. GARDIN 
R.ecorder,.A.nned Services 
Board of Contract .A.ppeals