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). 

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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