A mentor of mine once said that process and procedures can be more important than substance and results. Like solving a math problem, how you solve it is often more important than the answer itself. The same is true in resolving construction contract disputes with public owners.
Under a contract with the City of Baltimore, the Contractor agreed to complete an administrative dispute resolution process before suing the City. But, without first completing the administrative process, the Contractor sued the City. The Contractor tried to justify its lawsuit by arguing that the City had also agreed to follow an administrative process before it could assess liquidated damages and that the City was the first to breach the contract by not following that administrative process. (Being the first to breach the contract may excuse another party’s later breach of the same contract.)
The Court did not have to decide if the City first breached the contract because the Court decided the Contractor didn’t properly follow the administrative process before suing the City.
The Contractor has not lost the war, but it lost this battle, time, and money. Follow the process even if it appears unnecessary. As a math teacher might say, “show your work.”
Balfour Beatty Infrastructure, Inc. v. Mayor and City Council of Baltimore, Appeal No. 16-1322 (4th Cir., Apr. 25, 2017)
Recently, I posted about the Spearin Doctrine, which says that if a contractor follows the owner’s plans and specifications and something doesn’t work, the contractor is generally not at fault. But, this only works if the contractor first follows the owner’s design. It doesn’t work when the owner’s design will work as is, but you think it could be better.
In recently denying an HVAC Contractor’s appeal, the Armed Services Board of Contract Appeals stated, “the government may require performance [either] in excess of, or below, the standard normally accepted in a trade.” In other words, the government need not follow the industry standard. It can do less or more.
Under a firm, fixed-price contract managed by the Army Corps of Engineers, the Contractor agreed to upgrade the HVAC equipment at a Child Development Center at a facility in Hanover, NH. The project was “limited by budget constraints,” but included work intended to remedy the “thermal discomfort” of the facility’s occupants.
The Contractor advised the Corps that certain design improvements would help the end-user. The Corps considered the advice, but rejected the Contractor’s suggestion. Thereafter, the Contractor “delayed the project because it disagreed with the government’s design choices.” Ultimately, the Corps terminated the Contractor for default.
Appeals of Industrial Consultants, Inc., d/b/a W. Fortune & Co., ASBCA Nos. 59622, 60491 (March 10, 2017).
Have you ever played hide and seek? If you are the seeker, do you win the game when you find the hidden person? Yes, of course!
Unless, you’re a government contractor seeking “hidden” requirements that seem to pop-up around every corner. Just when it seems you’ve found the answer, requirement, specification, or drawing detail, the government replies that you missed something and should have kept seeking.
Do not fear, you may yet win this round. Give notice, track your costs, and organize the documents supporting your position. Later you may submit a claim.
Under a recent design-build project for the U.S. Navy, the contractor submitted claims for extra work on the construction of a dormitory at Aviano Air Base in Italy. Although the ASBCA denied the appeal because the contractor didn’t consider the many requirements that were incorporated into the contract by reference (not verbatim), the case provides a good lesson for contractor’s –
When it seems you’ve found the answer, keep looking to ensure the answer doesn’t change.
Appeals of A.T.I. Tacose S.C.a R.L., ASBCA Nos. 59157 and 59200 (Jan. 4, 2017).
Have you ever done exactly what you were supposed to do, but it didn’t work and you were blamed anyway? Nevertheless, if contractors follow the owner’s plans and it still doesn’t work, the contractor may be without fault – this is as it should be.
This happened when a public school district near Cape Girardeau, Missouri provided electrical plans to a contractor for an addition to a local high school. The contractor followed the plans and when problems arose, the school district blamed the contractor. Ultimately, however, the contractor can rely on the accuracy of the plans provided by the school district and the contractor may be blameless.
Contractors, be aware! Your express warranty can overwrite the owner’s implied Spearin warranty. If the contract includes language like “contractor has verified [or guarantees] the accuracy of the plans and specifications,” the contractor may be assuming responsibility for the owner’s design or plans.
Always understand what you’re signing or saying beforehand.
Penzel Construction Co. v. Jackson R-2 School District, No. ED 103878 (Mo Ct. of Appeals, Feb. 14, 2017)
During a recent soccer game, my seven-year-old son took the ball squarely in the face. But, he walked it off and continued playing. Contractors must do the same with changes.
In 2006, under a contract with NAVFAC for repairs to a wastewater treatment system at Naval Station Guantanamo Bay Cuba, the Contractor encountered differing site conditions. NAVFAC did not issue a suspension or stop work order, but the Contractor stopped working awaiting responses to RFIs. NAVFAC did not respond to all the RFIs. So, the Contractor submitted a certified claim, but the Contractor never resumed work. The Contractor should have continued working.
Under the Federal Acquisition Regulations, the Contractor is obligated to “prosecute the work diligently” and continue performance pending the outcome of a claim. (FAR 52.211-10 and 52.233-1(i)). Doing so not only mitigates potential delays and damages, but it ensures that when a claim is submitted, a “sum certain” (i.e., showing of damage) is possible.
In this case, the Contractor’s claim submission was premature and the Contractor’s refusal to perform directed or constructive changes pending the promise of payment precluded the ASBCA from having any power to resolve the dispute. The ASBCA dismissed the Contractor’s appeal because the Contractor sought future damages for work it had not yet performed. At worst, NAVFAC could have terminated the Contractor for default.
Appeal of Islands Mechanical Contractor, Inc., ASBCA No. 59655 (April 13, 2017)
You began the mediation or negotiation with energy, focus, and drive. You presented your position and listened to the other guy. Now, after hours of back-and-forth, the deal is almost done, save for signing an agreement. But, it’s late, your energy is gone, and you’re focused on driving home.
Wait! Don’t leave yet! “Don’t put off for tomorrow what can (and should) be done today.”
Someone else like you recently succeeded on a simple, two-page “Term Sheet” at the end of a single-day, 12-hour mediation. That Term Sheet was the best thing between efficiently winning a multi-million dollar dispute and potentially losing in litigation.
Next time you close a deal, get the essential terms on paper and signed by all parties before it’s Miller Time. Essential terms may include: price, time for payment, releases, warranties, confidentiality terms, and signatures. You’ll avoid headaches and needless cost when you do.
If possible, draft an agreement among all parties before the mediation or negotiation session begins so you’re not doing it with a foggy head in the wee hours of the morning.
LongView International Technology Solutions, Inc. et al., v. Terry Lin, et al., Record No. 160228 (Va. Supreme Ct., April 13, 2017).
You told the guy to do the work, the work is done, and now it’s time for payment, right? But, you only told the guy to do the work because somebody else told you do the work and that somebody else now won’t pay. This is, perhaps, the most frequent problem in construction.
Here is the short story of an Owner, GC, and Sub on a public building project in Virginia. During the project, changes were made (imagine that on a construction project). The Sub completed the changes and its scope of work three months later than planned. The Sub submitted Change Requests to the Owner through the GC. The Owner denied the Sub’s Change Requests and did not pay the GC for the delays and changed work. In turn, the GC did not pay the Sub because the Owner did not pay the GC. The Sub sued the GC and lost because of valid pay-when-paid and pay-if-paid provisions in the subcontract.
In reading the court’s opinion (Young Electrical Contractors, Inc. v. Dustin Construction, Inc., Md. App. No. 266 (Dec. 28, 2016)), there are three lessons for general contractors:
- Ask Owners. You’ll have a better chance of enforcing a pay-when-paid or pay-if-paid subcontract provision when you submit subcontractors’ change requests to owners. It’s impossible to say that the owner said NO when the general contractor fails to ask. If you don’t submit a sub’s change requests to the owner, you (the general contractor) may bear the risk.
- Get Paid to Pay. Many words are wasted over whether a clause is a pay-when-paid vs. pay-if-paid provision. Yes, there is a distinction and it can make a difference. But, it’s generally enough to remember that under either clause, the owner will or must pay the general before the general will or must pay the subcontractor.
- Repeat Specifically. You’ll benefit from specific and repeated pay-when-paid or pay-if-paid provisions vs. a blanket or general provision. Insert conditional language (g., “if”) at each of three typical subcontract payment scenarios, including, payment for: (1) undisputed work, (2) disputed (i.e., changed) work, and (3) claims and disputes.
“Circuit court litigation comes at a price, sometimes a heavy price.”
Does your contract include an attorneys fees provision? Does it include words like “reasonable” or “prevailing party?” If so, then the prevailing party may be reimbursed for its “reasonable” attorneys fees expended in the litigation or arbitration process.
On April 13, 2017, the Virginia Supreme Court held the trial court of the City of Virginia Beach abused its discretion when the plaintiff recovered the entire amount it sought from the defendant ($500), but defendant only had to pay $375 out of the $9,568.50 total attorneys fees expended to reach the judgment.
Under Virginia law, a Court or tribunal (e.g., arbitrator or arbitration panel) will typically consider at least seven different factors to determine how much is “reasonable.” Determining a reasonable amount is not a simple ratio calculation nor can it be predicted with certainty. The Court stated “merely applying a ratio between the damages actually awarded and damages originally sought will not satisfy the reasonableness inquiry.”
The Court also cautioned that parties should be careful not to overinflate their damages as “an unreasonably exaggerated claim for damages provokes a proportional response.” “This unnecessarily inflates the costs of litigation for both sides and increases the possibility that one will end up liable to the other for an exorbitant award of attorney’s fees.”
Lambert v. Sea Oats Condominium Association, Inc., Record No. 160269 (April 13, 2017).
Remember the adage, “what you say today could bite you tomorrow.”
Recently, a Contractor won its argument before the Armed Services Board of Contract Appeals (ASBCA) because the other party to the contract (the U.S. Army) prevented its own defense by insisting upon its own words and later trying to escape them.
Under a contract with the U.S. Army, Appellant/Contractor agreed to provide role-playing, human actors to help train soldiers to deal with civilians on a battlefield. Before the Army had issued the third of at least six task orders, the Contractor submitted a Request for Equitable Adjustment under Task Order No. 2.
In settling the Contractor’s Request for Equitable Adjustment, the Army drafted the language of a Contract Modification (Mod) stating “there are no further requests for equitable adjustments or claims to be submitted under this contract.” The Mod language was not limited to claims or requests by the Contractor. As such, the language included claims or requests by the Contractor AND the Army. This was the linchpin. Later, the Army lost its claim against the Contractor for damages related to Task Order No. 2 as the very language drafted by the Army in Mod 4 prevented the Army’s later claim.
Appeal of Supply & Service Team GmbH, ASBCA No. 59630, decided March 1, 2017.
Run Through the Base, Not To the Base
Thankfully, baseball season is back. While listening to a broadcast of my favorite team yesterday, I heard the announcer repeat the fundamental lesson of “running through the base, not to the base.” Running to a base leaves the runner no option or momentum to continue. When running through the base, the runner has the option to stop or keep going to the next base. This too is an important lesson for government contractors – run through your goals to preserve your options.
Recently, a contractor’s appeal was dismissed when the ASBCA found it had no jurisdiction because the contractor did not first submit a claim to the contracting officer. In the contractor’s defense, he probably (and understandably) thought a claim wasn’t necessary when a settlement had already been reached between the contractor and the Army, as evidenced by a written agreement from the contracting officer.
However, “through bureaucratic indifference, the government failed to keep its promise to pay appellant, failed to explain why it was not paying, and failed to retain records that demonstrate what happened.” ASBCA No. 60597, decided March 3, 2017 (underlining added). The Board was “sympathetic” to the contractor’s “predicament,” but the absence of a certified claim meant the Board was powerless to do anything.
To keep your options open and maintain momentum, claims may be necessary even when they shouldn’t be.