Liquidated Damages

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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) Continue Reading Cumulative Impact Claim Allowed by the United States Court of Federal Claims

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. Continue Reading Federal Appeals Court Upholds Ruling that Contractor was Entitled to Damages Resulting from Defective Specifications and Differing Site Conditions