A recent decision out of the U.S. Civilian Board of Contract Appeals highlights the importance of proper drafting in the context of precedent agreements. In Rockies Express Pipeline, LLC v. U.S. Dept. of Interior (Case No. CBCA 1821), the Board denied the Department's motion to dismiss an appeal filed by Rockies Express claiming, in part, that the Department had breached a Precedent Agreement requiring it to enter into a firm transportation agreement regarding its REX East project. The Department argued that the Precedent Agreement was not a contract within the purview of the Contract Disputes Act of 1978.
The Board disagreed, stating, in part: "The PA cannot be characterized as a letter of intent or a mere expression of intention or general willingness to do something on the happening of a particular event. The PA consists of detailed provisions with three appendices. Relying upon the express commitment of the respondent to ship its natural gas through the pipeline, the appellant committed substantial funds to the 'support and operation' of the pipeline. The appellant would thereafter provide transportation services through the pipeline for the respondent to ship specific quantities of natural gas through identified delivery points at specific prices according to specific pricing calculations."
Finding that the conditions precedent to entering into the transportation agreement had been fulfilled, the Board rejected the Department's attempt to get out of its contractual obligations. Had it wished to condition the obligation to enter into a firm transportation agreement on additional items, it should have so stated in the precedent agreement.