By: Edward T. DeLisle

If a government agency terminates a construction contractor for default, it cannot then sit on its hands. The agency must re-procure and complete that project within some reasonable amount of time. Failure to do so may result in the dismissal of any subsequent claim for excess costs to reprocure and finish the work. That was one of the very important messages delivered by the Court of Federal Claims last month in M.E.S., Inc. and Traveler’s Casulty & Surety Company of America v. The United States.

In September of 1998, the United States Postal Service (USPS) retained MES to build a new postal facility for it at a cost of $3,954,000. Prior to completion of the work, the USPS terminated plaintiff for failure to timely perform. The contractor disputed the termination, taking the position that defective plans and specifications prevented timely performance. While the parties attempted to amicably resolve their differences, their efforts failed, requiring the USPS to reprocure. The termination was issued on June 2, 1999.

The USPS did not reprocure until April 26, 2004, almost five years later. When questioned about the reason why it took so long to reprocure, the Contracting Officer for the USPS merely stated that there was “no reason” for the delay. In the meantime, the costs of completion escalated due to site deterioration, changes in the applicable construction codes and postal department standards, as well as certain “betterments” that the USPS desired upon reflection five years later. While, as part of its excess cost calculation, the agency’s experts attempted to eliminate certain costs that could not have reasonably been assessed to the defaulted contractor, the Court determined that the undue delay in reprocurement eliminated the USPS’s ability to demand any excess costs. Those costs were initially identified as $803,909 and later adjusted to $727,707.

In her opinion, the judge specifically stated that “a claim for excess reprocurement costs must be dismissed where an agency unreasonably delayed reprocurement and if that delay resulted in higher costs or otherwise prejudiced the contractor.” All of these elements were present in MES. Moreover, the USPS made no attempt to explain the basis for the delay, or rebut evidence provided by the contractor that the delay was unreasonable. For these reasons, the court threw out the government’s claim.

If anyone is interested in how not to properly terminate and then complete a project, I encourage you to read this opinion. As the court made a number of interesting rulings, stay tuned for more on MES.

Edward T. DeLisle is a Partner in the firm and a member of the Federal Contracting Practice Group.