In a recently released bid protest decision that could spell trouble for federal agencies, the Court of Federal Claims rejected as unreasonable the Federal Highway Administration’s (“FHWA”) proposed corrective action in an $18 million procurement for support services. Continue Reading Court of Federal Claims Puts Corrective Action Under the Microscope
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)
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.
The government has the right to insist upon strict compliance with the contract specifications. However, the government does not have an unlimited right to require corrective work when it is not really necessary and amounts to economic waste. In other words, just because a contractor has failed to comply with the precise requirements of the specifications, that does not mean that the government can force the contractor to needlessly spend thousands of dollars when the work is otherwise acceptable. The economic waste doctrine is an exception to the general rule that “the government generally has the right to insist on performance in strict compliance with the contract specifications and may require a contractor to correct nonconforming work.”
A recent case before the United States Court of Federal Claims highlights the viability of the exception. In M.A. DeAtley Construction, Inc. v. United States, (Fed. Cl. February 28, 2007), the contractor pursued a claim of over $250,000.00 because the government directed removal and replacement of a roadway subbase. The specifications required that no more than 10% of the aggregate in the subbase pass the #200 sieve. The contractor’s stone aggregate gradation was 10.69%. Although the contractor maintained that the gradation substantially complied with the specifications, the government directed removal because of the .69% overage. The contractor offered a small credit to the agency because of the slight deviation, but the government rejected the offer.
The government moved to dismiss the economic waste claim on the procedural ground that the argument had not been presented to the contracting officer, as required by the Contract Disputes Act. The Court denied the motion stating that the contractor had presented the “operative facts” of an economic waste claim to the contracting officer, namely that the contractor had substantially complied with the specifications, that the work was adequate for its intended purpose, and that removal and replacement was economically wasteful.
Contractors should carefully review government directives to remove and replace work. If it can be established that the work substantially complied with the specifications and was otherwise adequate for its intended purpose, it may prudent to present this argument to the contracting officer before undertaking costly removal and replacement work.
After a hiatus in the posting of new decisions on its website dating back to October 2006, the Armed Services Board of Contract Appeals recently posted a series of new decisions. We will review and comment on the most interesting ones in upcoming articles and we begin today with the decision in Emerson Construction Co. Inc., ASBCA No. 55165, dated December 8, 2006.
The government filed a motion for partial summary judgment alleging that the contractor was not entitled to an equitable adjustment under FAR 52.211-18, VARIATION IN ESTIMATED QUANTITY (APR 1984) (VEQ clause), as a matter of law. According to the government, the VEQ clause was not applicable to firm, fixed-price requirements type construction contracts. The contract required Emerson to provide “All Labor, Equipment and Materials for Miscellaneous Roads, Grounds, Site Repairs and Improvements at Fort Hood, Texas.” The schedule included 23 pages listing each item of work to be accomplished along with the estimated quantity of each.
The government admitted that it ordered less than 85% of the estimated quantities overall, but argued that the VEQ clause should be applied to each individual delivery order, and not to the overall estimated quantity estimated in the contract. In other words, unless each individual delivery order provided an estimated quantity of unit-priced items, the VEQ clause shuld not apply. The Board disagreed and held that the VEQ clause was applicable to the overall requirements contract, not just to the individual awarded delivery orders. The VEQ clause stated that it was applicable to “this contract.” In the Board’s view, “this contract” indisputably referred to the overall requirements contract. The contractor submitted an affidavit with an item-by-item analysis showing that the government ordered 85% of estimated quantities on only 7 of the 76 line items for the base year and only 6 of the 76 line items for the first option year. In fact, for a majority of the 76 line items for the base year and first option year, the Government ordered less than 50% of the estimated quantities.
The Board concluded that under the VEQ clause, a contractor is entitled to an equitable adjustment in the contract price for increased costs due solely to the variation of unit-priced items actually ordered by the Government below 85 percent of the quantities of the unit-priced items estimated to be ordered under the contract. Henry Angelo & Co., ASBCA No. 43669, 94-1 BCA ¶ 26,484 at 131,824. The Board ruled that Emerson had shown, for purposes of entitlement, that there was such a variation.
As we have mentioned previously, the growing use of multiple award task order contracts in federal construction contracting, as can be seen in much of the disaster recovery work in New Orleans, is limiting the competitive opportunities for small and mid-sized construction contractors. Unless a contractor is the recipient of one of the major task order contract awards, there is no opportunity for a contractor to compete for upcoming individual task orders and the contractor is effectively precluded from competing for potentially millions of dollars of work to be awarded over a period of years. In the past, when there were more single award contracts, if a contractor lost out to a competitor, there was always another solicitation on the horizon. If a contractor fails to become one of those selected to compete under a multiple award task order contract, there may be no, or very little, work “waiting in the wings.”
It follows that it is important to monitor the decisions of the GAO and the courts to see what is being done to protect the rights of contractors, and we will continue to do so. In a newly issued GAO decision, Palmetto GBA, LLC, B-299154, December 19, 2006, the Comptroller General stated that according to the legislative history of the Federal Acquisition Streamlining Act (FASA), task and delivery-order contracts were intended to encourage the use of multiple-award, rather than single-award contracts, in order to promote an ongoing competitive environment in which each awardee would be fairly considered for each order issued. H.R. Conf. Rep. No. 103-712, at 178 (1994), reprinted in 1994 U.S.C.C.A.N. 2607, 2608; S. Rep. No.103258, at 15-16 (1994), reprinted in 1994 U.S.C.C.A.N. 2561, 2575-76. In this regard, the Federal Acquisition Regulation (FAR) requires agencies to provide all awardees “fair opportunity to be considered for each order exceeding $3,000 issued under multiple delivery-order contracts or multiple task-order contracts.” FAR sect. 16.505(b)(1)(i).
An interesting aspect of the Palmetto case is that the GAO reiterated that a task or delivery order that precludes competition for future task or delivery orders for the duration of the contract performance period may constitute a “downselection.” The GAO has recognized downselections in circumstances not only where all work under a contract will be foreclosed from future competition, but also where specific categories of work will be similarly foreclosed for the duration of the contract. While the GAO did not find that “downselection” occurred in the Palmetto case, it is important for contractors to recognize that a task order award that eliminates competition for future work can be successfully protested. Continue Reading Task Order Contractors Must be Given a Fair Opportunity to Compete for Individual Task Orders
This recent Court of Federal Claims decision involves a USDA contract for the construction of a vegetable laboratory in Charleston, South Carolina. The contractor was terminated for default and the bonding company, Travelers Casualty and Surety of America, took over under the terms of the performance bond.
While there is nothing particularly noteworthy about the Court’s lengthy recitation of the facts, the Court did restate some important rules governing the determination of defective specifications. The Court referred to one of the landmark cases in federal government contracting, Spearin v. U.S., where Justice Brandeis wrote the Supreme Court opinion that established the “Spearin Doctrine’ (a contractor will not be liable to an owner for loss or damage which results solely from insufficiencies or defects in plans and specifications). As the Supreme Court explained:
[I]f the contractor is bound to build according to plans and specifications prepared by the owner, the contractor will not be responsible for the consequences of defects in the plans and specifications. This responsibility of the owner is not overcome by the usual clauses requiring builders to visit the site, to check the plans, and to inform themselves of the requirements of the work . . . . In Spearin, the Supreme Court held that contract provisions “prescribing the character, dimensions and location of” a structure to be constructed “imported a warranty that, if the specifications were complied with, the [structure] would be adequate.”
The Navy recently awarded three cost-plus-award-fee, indefinite-delivery/indefinite-quantity (ID/IQ) contracts to Fluor International, Inc., URS-IAP, LLC (a joint venture of URS Corporation and IAP Worldwide Services, Inc.) and Atlantic Contingency Constructors, LLC (a limited liability company managed by The Shaw Group) for global contingency construction. Each contract was for a base year with four one year options, and the value of each contract was approximately one billion dollars. The contractors were to provide construction and related engineering services in response to war fighting needs, global natural disasters, and humanitarian assistance.
The awards were made following a "best value" evaluation based on experience, past performance, contingency planning, management, small business utilization, and cost. Non-cost factors were considered more important than cost. A disappointed offeror, Kellogg Brown & Root Services, Inc. (“KBR”), filed a GAO protest asserting that the Navy misevaluated the proposals under technical and cost factors. The GAO agreed and issued a decision sustaining the protest.
The Court of Federal Claims, in Trafalgar House Construction v. United States, recently reiterated the criteria that a contractor must meet if it decides to use the total cost method to calculating damages for differing site conditions and delays. This method essentially involves subtracting the bid price from the total costs incurred and adding profit to the difference. In this way, a contractor takes the position that all of the costs it incurred above and beyond the bid price are the responsibility of the government. The courts disfavor this approach, as stated in the Trafalgar decision, because of “bidding inaccuracies” and “performance inefficiencies” that “skew” the accuracy of the damage calculation. The criteria that a contractor must meet to sustain a total cost method damage calculation are as follows:
1) That it was impractical to prove its actual losses directly
2) That its bid was reasonable
3) That the actual costs incurred were reasonable
4) That the contractor was not responsible for the added costs
In the Trafalgar case, the contractor failed to meet the first criteria and was unable to demonstrate why its costs could not be calculated directly. The criteria established by the Court are very stringent and difficult for a contractor to meet. As a result, the message is quite clear: contractors should find another, more accurate, more reliable method of proving damages. Contractors are well advised to segregate labor and material costs for work items in dispute that involve such things as differing site conditions, delays, and changes in the work. By segregating costs, contractors are in a better position to negotiate and resolve disputes, and they will be able to prove their costs in a way that will be accepted by government auditors, administrative boards, and the courts. The bottom line is that the courts are very reluctant to accept the total cost approach as a method to calculate damages.
The GAO published a decision today in the Matter of SunEdison, LLC, B-298583; B-298583.2, dated October 30, 2006, involving SunEdison’s protest of an award to PowerLight Corporation under request for proposals (RFP) No. FA4861-06-R-B501, issued by the Department of the Air Force for the construction and operation of a photovoltaic array to supply solar power to Nellis Air Force Base (AFB) in Nevada. The protester contended that the agency’s evaluation of offerors’ prices was flawed and the GAO sustained the protest.
The protester argued that the agency’s evaluation of the offerors’ prices was flawed in that it failed to take into consideration that PowerLight’s price was offered contingent upon “successful completion of an REC purchase agreement with Nevada Power,” whereas its own price was offered on an unconditional basis. The GAO agreed that the agency’s price evaluation was flawed and found hat PowerLight’s inclusion of a contingency in its pricing rendered the proposal ineligible for award. Where a solicitation requests offers on a fixed-price basis, an offer that is conditional and not firm cannot be considered for award. Omega World Travel, Inc.; Sato/Travel, Inc., B-288861.5 et al., Aug. 21, 2002, 2002 CPD para. 149 at 6. Here, not only did PowerLight make its offer conditional upon successful completion of an REC purchase agreement, but further, it acknowledged the uncertainty of such an agreement being reached.
Government contractors need to keep in mind, when responding to a sealed bid invitation or to a request for proposals, that conditional pricing is an almost certain way to have your bid, or offer, rejected. Of course, this procurement seems to have been yet another of those all too frequent “negotiated” procurements were actual discussions, or negotiations, did not occur. The Contracting Officer simply furnished each of the offerors with “evaluation notices” describing required information that had not been fully addressed in the proposal or that required clarification. Apparently the uncertainty in PowerLight’s proposal was not addressed, and there were no discussions during which additional issues could have been raised. (Unlike sealed bidding, where a bid cannot be revised after bid opening, offers submitted in response to a Request for Proposals can be revised after offers are submitted if the government conducts discussions, or negotiations, and gives the offerors in the competitive range an opportunity to submit best and final offers. The regulations regarding Contracting by Negotiation are found in FAR, Part 15).