In a decision issued on April 21, 2008,  Bell BCI Company v, United States, the United States Court of Federal Claims issued a decision that can only be described as a “slam dunk” for the contractor. The case arose from the construction of a laboratory building at the National Institutes of Health (“NIH”) in Bethesda, Maryland.  Approximately nine months into construction, NIH decided to add a new floor to the building. NIH issued more than 200 contract modifications that delayed the completion of the project by 19-1/2 months, and increased the contract price by $21.4 million, or 34 percent.  The prime contractor, Bell BCI Company (“Bell”), received payment for performing most of the changed work, but asserted an impact claim for the cumulative effect of the changes on Bell’s overall performance.  The decision includes a number of conclusions of law that will be very interesting to contractors who face unwarranted denials of cumulative impact claims, or the unfair application of leverage by the Government. The description below is based upon excerpts from the decision, but a reading of the entire decision is strongly recommended.

The Court found in favor of the contractor, and awarded damages of $6,200,672, the full amount of its claim, plus Contract Disputes Act interest measured from April 5, 2002. The record demonstrated that NIH, despite its best intentions, lost control of the project beginning in September 2000, and could not prevent the scientists who would occupy the building from demanding changes. The addition of a new floor after construction had begun proved to be a disastrous idea, particularly in causing many mechanical and electrical changes after the work already had been installed.  As changes and delays mounted, NIH and its quality management firm only made matters worse by directing Bell to perform extra work without time extensions, or authorizing Bell to accelerate performance. In issuing 200-plus contract modifications, NIH actually addressed more than 730 Extra Work Orders (“EWOs”).

The Court found that there was evidence that NIH failed to satisfy its implied duty of good faith and fair dealing in the administration of the project. NIH asserted a liquidated damages claim against Bell knowing that such a claim lacked a factual basis. NIH lodged this claim only to gain negotiating leverage after Bell submitted a request for equitable adjustment.  Further, NIH’s quality construction manager recanted the Contracting Officer’s approval of various extra work items after Bell had completed the extra work.  The Court noted “a contracting officer’s review of certified claims submitted in good faith is not intended to be a negotiating game where the agency may deny meritorious claims to gain leverage over the contractor.” Moreland Corp. v. United States, 76 Fed. Cl. 268, 292 (2007). The same principle applies where the agency asserts an unfounded liquidated damages claim solely to gain negotiating leverage.

The Court stated that Bell’s claim for damages from delay and cumulative impact on the NIH project sometimes is called a “delay and disruption” claim. There is a distinction in the law between: (1) a “delay” claim; and (2) a “disruption” or “cumulative impact” claim. Although the two claim types often arise together in the same project, a “delay” claim captures the time and cost of not being able to work, while a “disruption” claim captures the cost of working less efficiently than planned. Bell BCI Co. v. United States, 72 Fed. Cl. 164, 168 (2006); see also U.S. Indus., Inc. v. Blake Constr. Co., Inc., 671 F.2d 539, 546 (D.C. Cir. 1982) (holding that, unlike a delay claim that provides redress from not being able to work, a disruption claim compensates for damages when the work is more difficult and expensive than anticipated).

The contractor must prove for either claim the elements of liability, causation, and resultant injury. When the contractor is asserting a delay claim, the contractor has the burden of showing the extent of the delay, that the delay was proximately caused by government action, and that the delay caused damage to the contractor. While the law requires “reasonable certainty” to support a damages award, damages do not need to proven with mathematical exactness. Rather, “[i]t is sufficient if a claimant furnishes the court with a reasonable basis for computation, even though the result is only approximate.”  Ace Constructors, Inc. v. United States, 70 Fed. Cl. 253, 274 (2006)

The preferred method for proving costs is through the submission of actual cost data.  Delco, 17 Cl. Ct. at 321 (citing Cen-Vi-Ro of Texas, Inc. v. United States, 210 Ct. Cl. 684, 538 F.2d 348 (1976)).  However, where actual cost data is not available, estimates of the costs may be used.  Estimates of costs “should be prepared by competent individuals with adequate knowledge of the facts and circumstances,” and should be “supported with detailed substantiating data.” Delco, 17 Cl. Ct. at 321 (citations omitted). The Court also must be alert to cases where the Government has caused the circumstances making the ascertainment of damages difficult. As the Court of Claims previously noted “The constant tendency of the courts is to find some way in which damages can be awarded where a wrong has been done.  Difficulty of ascertainment is not to be confused with right or recovery. Nor does it exonerate the defendant that his misconduct, which has made necessary the inquiry into the question of harm, renders that inquiry difficult.  The defendant who has wrongfully broken a contract should not be permitted to reap advantage from his own wrong by insisting on proof which by reason of his breach is unobtainable. (Citations omitted).

Government change orders on building projects such as NIH Building 50 may add or subtract to the contractor’s cost of performance, and may affect the time required to complete the work. Bilateral modifications agreed to by the parties generally cover the costs and time of performing the changed work. On a project where the Government issues many change orders, bilateral modifications will compensate the contractor for the cost of performing the changed work, but the cumulative effect of the changes may add to the contractor’s time and effort in performing the unchanged work as well. Unless provided otherwise, the bilateral modifications will compensate the contractor for performing the changed work, but not for the impact of multiple change orders on the unchanged work.

Multiple change orders on a construction project potentially can be accommodated if the owner acknowledges that additional time and money will be required, and if the parties carefully plan the sequencing of the changed work. However, if the owner as here denies the additional time or money to perform changed work, but nevertheless continues the flow of change orders to the contractor, a chaotic project inevitably will result. In this case, there were 279 EWOs and 113 contract modifications issued after August 30, 2000, while NIH project personnel were maintaining that no further changes would be issued. The project environment was contentious, as NIH representatives bordered on bad faith in denying payment to Bell for extra work performed. Based upon the evidence presented, the Court was satisfied that Bell had es
tablished a reasonable basis for its cumulative impact claim, and Defendant, NIH,  has failed to show that the claim should be denied or reduced in any respect.

Significantly, the Court was not willing to accept NIH’s argument that release language in one of the principal contract modifications prevented the contractor from recovering its damages.  None of the 206 contract modifications issued on the project included any NIH payment or other consideration to Bell for a disruption, cumulative impact, or labor inefficiency claim.  Similarly, none of the modifications contained any language explicitly waiving or releasing such a claim. While language sporadically appeared in some modifications purporting to reserve rights, the Court concluded that no meeting of the minds between the parties ever occurred. The Court found that there was no evidence that NIH ever provided any consideration to Bell to settle a cumulative impact claim and that many of the events relevant to the cumulative impact claim did not even arise until after the parties signed Modification 093.