Harbert/Lummus Agrifuels Projects v. United States

The federal government (plaintiff), through the Department of Energy (DOE), entered into a contract with Agrifuels Refining Corporation (Agrifuels) to build an ethanol plant. Under the Alcohol Fuels Program, the Alcohol Fuels Program Office (Program Office), a division of the DOE, guaranteed 90 percent of the loan Agrifuels took out to construct the plant. Agrifuels then contracted with Harbert/Lummus (defendant) to construct the plant. Harbert/Lummus was not a party to the government’s contract with Agrifuels. During construction of the plant, Harbert/Lummus met with Agrifuels, the Deputy Director of the Program Office, and the government’s contracting officer to discuss the issue of untimely payments from Agrifuels. The Deputy Director, who did not have authority to enter into contracts on behalf of the government, promised Harbert/Lummus that the government would cover any outstanding payments if Harbert/Lummus completed work on the ethanol plant. The contracting officer neither confirmed nor disputed the deputy director’s promise; the contracting officer was totally silent. Based on the deputy director’s promise, Harbert/Lummus completed work on the ethanol plant. Agrifuels declared bankruptcy and defaulted on the loan contract it had with the DOE. The DOE then ceased all funding for the plant. Harbert/Lummus sued for damages, arguing that the DOE breached the oral contract to guarantee funding for Harbert/Lummus’s work. The trial court awarded Harbert/Lummus approximately $2.9 million in damages, holding that the contracting officer ratified the deputy director’s promise by his silence, thereby creating a new, unilateral contract between the DOE and Harbert/Lummus. The government appealed, arguing that (1) the oral contract was void because it failed to comply with DOE procedures; and (2) the contracting officer had not ratified the oral agreement between the deputy director and Harbert/Lummus.