Federal Construction Contracting Blog : Federal Construction Contracting Law Firm : Cohen Seglias Pallas Greenhall & Furman PC : Construction Law, Dredging and Claims

By: Michael H. Payne

A decision was issued by the United States Court of Federal Claims on December 20, 2011, in Martin Construction Co. v. United States, a case involving a Corps of Engineers construction project in North Dakota. Martin was represented by Michael Payne and Joseph Hackenbracht, of Cohen Seglias Pallas Greenhall & Furman, and the case involved a termination for default by the Omaha District of the Corps on a multi-million dollar project involving the construction of a marina. The termination occurred because the Contracting Officer concluded that Martin was at fault for failing to complete the project by the required contract completion date. Martin had argued that the Corps’ design of the cofferdam (temporary dam), which was critical to the construction of the marina, was defective and that the contractor was effectively prevented from completing the marina according to the original schedule. The Court agreed that there was a defective design and found that the Corps’ designer had grossly underestimated the amount of water that would flow through the cofferdam.

The decision is extremely critical of the Corps of Engineers and amounts to a complete vindication of Martin. The Court ruled that the termination for default was wrongful and ordered a conversion to a termination for convenience. This, of course, now exposes the Corps to the payment of damages amounting to millions of dollars to compensate Martin for the costs incurred in attempting to deal with the defective design. The Court aptly noted that “The most troubling aspect of this case is the Corps’ adamant refusal to accept any responsibility for the defective design, even while Martin made every effort to comply with it.” The Court was also very critical of the Contracting Officer and stated that “Competent procurement officials would have acknowledged the agency’s obvious design mistake, made the necessary corrections, and afforded the contractor the contractor the additional time and money to complete performance.”

The Court concluded that the “evidence is overwhelming” that Martin was entitled to a time extension and that the termination for default was improper. Judge Thomas Wheeler quoted Martin’s geotechnical and scheduling experts, and he also quoted the Plaintiff’s brief by stating that “As Plaintiff’s counsel aptly pointed out, the Defendant ‘ignored the elephant standing amongst the teacups in the living room.” The decision is an important verification to the federal contracting community that a termination for default is a “drastic action” that will not be sustained unless the government can meet its burden of proof that the termination was justified. It was unfortunate, however, that Martin was forced to suffer the consequences of the “black mark” associated with a default termination until, as in this case, justice was ultimately served.

Michael H. Payne is the Chairman of the firm's Federal Practice Group and, together with other experienced members of the group, frequently advises contractors on federal contracting matters, including teaming arrangements, negotiated procurements, bid protests, claims, and appeals.

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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.

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