Federal Appeals Court Upholds Ruling that Contractor was Entitled to Damages Resulting from Defective Specifications and Differing Site Conditions
In a case captioned as Ace Constructors, Inc. v. United States concerning a contract with the Corps of Engineers for the construction of a structure at Biggs Army Airfield, the Federal Circuit upheld a Court of Federal Claims ruling awarding an equitable adjustment to ACE Constructors (“ACE”) and the return of liquidated delay damages. The Court had ruled that, due to unforeseen conditions and defective specifications that were incorporated into the contract, ACE was entitled to additional relief beyond that which was provided by the contracting officer. In particular, the Court awarded ACE its additional costs for: 1) being required to use a more expensive concrete testing methodology than was required by the contract; 2) being required to use a more expensive method of concrete paving than was required by the contract; and, 3) a Type I differing site condition that required 129,000 additional cubic yards of fill dirt.
On appeal, the government argued that the award for concrete testing was erroneous because: 1) ACE had failed to exhaust its administrative remedies and, therefore, the Court did not have jurisdiction over the claim; 2) the contract required the more expensive testing method; and 3) ACE did not demonstrate that its bid was based on the less expensive method of testing. The Federal Circuit held that the Court of Federal claims had jurisdiction because the claim presented to the contracting officer and the claim before the Court did not differ significantly. The Circuit Court also upheld the lower court’s ruling that the specifications were defective and that ACE reasonably concluded that the more expensive testing was not required by the contract (a fact which the government had acknowledged during the course of performance of the contract). Finally, the Circuit Court upheld the lower court’s ruling that ACE reasonably based its bid on the less expensive method of testing. Regarding the method of concrete paving required by the contract, the government again argued that the Court lacked jurisdiction to entertain the claim and additionally argued that ACE unreasonably relied on the defective contract specification when it calculated its bid based on the less expensive method of paving. The Federal Circuit again found that the Court of Federal Claims had jurisdiction over the claim and upheld the Court’s ruling that when the government provides a contractor with defective specifications, it is deemed to have breached the implied warranty that satisfactory contract performance will result from adherence to the specifications. ACE’s reliance on the specifications was reasonable.
On the Type I differing site condition claim, the government contested the quantum on appeal, arguing that ACE should have foreseen the error in the specifications and that the government should be credited for the (unrealized) savings that ACE anticipated from not having to bring in additional fill dirt when it bid the project. The Federal Circuit upheld the Court’s determination that ACE, and the expert consultant it used in the bidding process, reasonably concluded from the plans provided by the government that significant amounts of additional fill dirt would not be needed. As for the government’s second argument concerning a credit for unrealized savings, the Federal Circuit ruled that “[t]his argument was not presented to the contracting officer, was not discussed in the decision of the [CoFC], and is devoid of merit.”
This synopsis of the case was furnished by Case Digest, a publication of the Federal Circuit Bar association.