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.

The American Society of Civil Engineers calls attention, on its website, to the rapid deterioration of our nation’s highways, bridges, airports, dams, waterways, water systems, wastewater systems and other infrastructure facilities that are vital to our nation’s economy and our quality of life.  Estimating that over $1.6 trillion needs to be invested during the next five years to restore the infrastructure to only a good condition, the ASCE offers a plan of action for Congress to address this national emergency.

Implementation of this action plan, or even just portions of the plan, would represent a significant opportunity for Federal construction contractors.

Earlier this month, the President submitted the Administration’s FY2008 Budget to Congress. Federal construction contractors should be encouraged by the large number of projects that are proposed for funding.  The budget provides the highest level of funding ever included in any President’s budget for U.S. Army Corps of Engineers’ water resources projects and programs.  The proposed budget for the Department of Defense includes over $8 billion for the BRAC (Base Realignment and Closure) program.  The Defense FY2008 budget also includes considerable funding for military construction to support the Integrated Global Presence and Basing Strategy (IGPBS) that is presently being implemented to move U.S. forces from overseas to continental U.S. installations to better position them to support worldwide contingencies.

For more information on where these projects will be built in the coming years, please click here. The FY2008 Budget for military construction totals over $18 billion.  

A proposed amendment to the FAR was published in the Federal Register on February 16, 2007 to address Contractor Code of Ethics and Business Conduct.   FAR 3.101, Standards of Conduct, provides that “Government business shall be conducted in a manner above reproach and, except as authorized by statute or regulation, with complete impartiality and with preferential treatment for none. Transactions relating to the expenditure of public funds require the highest degree of public trust and an impeccable standard of conduct.  The general rule is to avoid strictly any conflict of interest or even the appearance of a conflict of interest in Government-contractor relationships.” 

The Federal Register notice points out that FAR Part 3 provides guidance on improper business practices and personal conflicts of interest, but it does not discuss the contractor’s responsibilities with regard to code of ethics and business conduct and the avoidance of improper business practices.  The proposed new regulation will provide that contractors receiving awards in excess of $5,000,000 that have performance periods of 120 days or more, shall have a written code of ethics and business conduct within 30 days after contract award.  Furthermore, the contractor will be required to promote compliance by establishing, within 90 days after contract award, an employee ethics and compliance training program and an internal control system proportionate to the size of the company and extent of its business with the Federal Government.

Contractors who currently compete for contracts in excess of $5 million, with performance periods in excess of 120 days, and do not currently have a Code of Ethics or an internal training program, would be well-advised to start planning to take steps in anticipation of the new regulation. In fact, implementation of these requirements is a good idea even if the proposed regulation is not ultimately approved. Comments on the proposal are due no later than April 17, 2007.

One of the byproducts of the recent use of negotiated procurements under FAR, Part 15, has been the concern, on the part of contractors, that the submission of claims will be a negative factor during the evaluation process on a Request for Proposals.  While we can certainly understand that a contractor who has a history of filing frivolous claims might deserve to be downgraded, we see no valid reason for the government to assign a lower rating to a contractor who has filed meritorious, or good faith, claims in the past.

On February 12, 2006, a provision was added to the Defense Federal Acquisition Regulation Supplement (DFARS) dealing with the review of claims that we find very disturbing.  Under DFARS Subpart 233.2, Disputes and Appeals, Paragraph 233.10, “Contracting Officer’s Authority,” there is a reference to a new “PGI” (Procedures. Guidance and Information). The new guidance states that “When it would be helpful in reviewing the current claim, the contracting officer should get information on claims previously filed by the contractor.  Such information may provide a historical perspective of the nature and accuracy of the claims submitted by the contractor and how they were settled.  Potential sources for the information include the contracting activity’s office of legal counsel, other contracting activities, and the Defense Contract Audit Agency.”

We believe that each claim should stand on its own merits.  Each claim is different and is the result of a different contract, a different set of facts, and is ultimately decided by a different set of legal principles.  In addition, the Contract Disputes Act of 1978 gives contractors the right to file claims.  It seems to us that “guidance” that could potentially penalize contractors for filing claims is most inappropriate.

Continue Reading New DFARS Provision Has a "Chilling Effect" on Claims

We have recently presented a series of very well-received and  well attended seminars on “The New World of Federal Government Construction Contracting."  It is evident from the questions raised by many of the attendees that contractors are concerned about the decline in contracting opportunities as the federal government shifts from sealed bidding to the extensive use of negotiated procurements. The last in this series of seminars will be held in New Orleans on February 27, 2007, and a large number of contractors have already registered.  The tremendous amount of work resulting from the disastrous effects of Hurricane Katrina has forced the Corps of Engineers to be more creative in its contracting methods.  The seminar will address the growing use of negotiated IDIQ and MATOC contracting, the need to develop teaming arrangements, and the need prepare effective proposals in response to government solicitations (RFPs)..

If you are interested in attending the New Orleans seminar, please refer to the attached agenda and registration form 

A recent decision by the Court of Federal Claims, AAB Joint Venture v. United States, (January 26, 2007), illustrates some of the subtleties of the Contract Disputes Act of 1978.  The contractor was awarded a design-build contract for a military storage complex.  The government provided a geotechnical report in the solicitation for the contractor’s use in preparing its proposal and subsequent design.  The contractor discovered, during construction, that the actual subsurface conditions differed materially from those represented in the government’s geotechnical report. Specifically, the report stated that the material was “limy dolomite rock, mostly massive and hard.”  However, the contractor discovered that there was less hard rock and more expansive, clayey material.  The latter material adversely affected the contractor’s plan to use shorter piles and spread footings for the building foundations.

The contractor submitted a certified claim to the contracting officer for the impact of the differing site conditions on the length of piles required for the perimeter of the structures, contending that the softer material required longer pile lengths.  When the government failed to issue a contracting officer’s decision, the contractor appealed to the Court of Federal Claims on the basis of a deemed denial of its claim. 

In its complaint, the contractor included a claim for the removal of unsuitable subsurface material in the footprint of the structures and requested a $412,000 equitable adjustment. The government objected to that part of the claim, arguing that the claim had not been presented to the contracting officer and, consequently, had not been certified. The government sought dismissal of the unsuitable material claim because the Court lacks jurisdiction to hear a claim that has not been presented to the contracting officer and certified. Continue Reading Court of Federal Claims Rules That A Differing Site Conditions Claim Must Be Precise

In an a press release issued by Construction News, a publication of the Associated General Contractors of America (AGC), it was reported that the U.S. Environmental Protection Agency (EPA) and the AGC had both filed an appeal with the U.S. Court of Appeals for the Ninth Circuit to contest a recent California district court ruling that requires the EPA to issue an “effluent limitation guideline” (ELG) for the “Construction and Development” (C&D) industry.

Such an ELG would set uniform, nationwide limits on the sediment that stormwater can lawfully discharge from construction sites. After years of analysis and outreach, EPA concluded that additional rules are unnecessary, given the evolution of the existing stormwater program.

“EPA recognizes that there is no ‘one-size-fits-all’ approach to stormwater runoff,” said AGC CEO Stephen E. Sandherr. “The better way to protect the environment is to allow state and local authorities to tailor the details of their construction runoff programs to state and local conditions, and not to impose a rigid and inflexible federal standard.”

Continue Reading AGC Appeals Ruling that EPA Must Set Limits on Sediment in Construction Runoff

A recently reported decision by the Armed Services Board of Contract Appeals underscores the necessity for bidders to review pre-bid data listed in the solicitation. In Mass Construction Group, Inc., ASBCA No. 55440, the contractor pursued a claim for a differing site condition, alleging that it had encountered a Type II condition, namely “unanticipated” groundwater flooding into its footing excavations.

The ASBCA, in denying the contractor’s appeal, made the following findings of fact:

1)  The solicitation advised bidders that subsurface data was available for review at a specified location. (the government’s contracting office).

2)  The subsurface data disclosed a groundwater table that existed between three and one half and six feet of the surface elevation.

3) The contractor did not review any of the subsurface data before submitting its bid and did not attend the pre-bid site visit.

4) The site conditions encountered by the contractor were quite similar to those disclosed in the subsurface drilling logs that the contractor neglected to review.

The ASBCA, therefore, found that the contractor had not established that it had encountered unanticipated site conditions. Significantly, the Board stated that the failure to review the subsurface data at the scheduled pre-bid site visit,” put Mass at risk of any unexpected subsurface conditions which it encountered.” 

The message in this decision is unmistakable: If the government’s solicitation advises potential bidders of subsurface data that is available for inspection, bidders must review this data or be willing to risk the potentially serious consequences of failing to do so.

There are many resources available to federal construction contractors, but there a few as useful as the services provided by Paul Perkins and his company, Construction Contract Specialists.  We have had the privilege of working with Paul on a number of construction cases, and we continue to be impressed by his tireless efforts on behalf of his clients, and his extensive knowledge of construction contracting.  All too often, construction contractors do not have the time, or the manpower, to properly respond to a letter from the government, or to develop and document a construction claim.  That is where Paul comes in – he never fails to get the job done in a timely and competent manner.  He is willing to immerse himself and do the hard work that needs to done when it comes to developing and documenting the facts relating to a construction issue.

Paul worked in various management and supervisory positions with the U. S. Army Corps of Engineers for more than twenty-five years before he founded Construction Contract Specialists, Inc. in 1995.  He organized the company for “for the express purpose of providing reliable and highly qualified cradle-to-grave type assistance to small and medium sized contractors at an affordable price in their quest to level the playing field and, at the end of the day, end up with a successful and profitable project and an above average or even outstanding overall performance evaluation.”   Since Paul has served as both an Administrative Contracting Officer and an Authorized Representative of the Contracting Officer, it is his first-hand knowledge of how the government does business that makes him such a valuable resource to federal construction contractors.  He literally understands what is happening on both sides of the fence.

Construction Contract Specialists publishes a very informative and free newsletter, the Federal Construction Project Manager’s Bulletin, that is packed with useful information and practical insights for construction contractors.  It is easy to subscribe and we highly recommend that contractors take advantage of this free offer by signing up a CCSI’s website.  The latest issue, dealing with the “Enforceability of Contracts,” is attached.