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Defective Specifications Result in Equitable Adjustment Despite Government's Argument that Contractor 'Should Have Known'
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November 23, 2009
ConstructionWebLinks.com
The U.S. Court of Appeals for the Federal Circuit has ruled that a contractor reasonably relied on defective government specifications and was entitled to an equitable adjustment for resulting increased costs of performance.
The Army Corps of Engineers contracted with Ace Constructors for construction of loading areas, taxiways, roadways and related facilities at an airfield. The contract required site work, concrete paving and construction of structures. During construction, the government ordered the contractor to test concrete smoothness by profilographic testing instead of by less expensive straightedge testing and to form concrete using slip forms rather than less expensive fixed forms. In addition, site conditions required the contractor to place 129,000 cubic yards of fill, even though the specifications indicated a balanced project. The contractor performed the work but protested that these items increased its costs and were not required by the government’s specifications.
The specifications discussed both profilographic testing and straightedge testing; but, among other things, specified that the contractor “shall” provide a straightedge and “may” provide a profilograph. The contractor claimed that it based its bid on the less expensive straightedge method and argued that the profilograph method was inappropriate for this project and more expensive. Ultimately, the government admitted that the straightedge method was better suited to the project and, after requiring profilographic testing on part of the work, dropped the requirement in favor of straightedge testing.
The specifications also discussed both slip-forming concrete and using fixed forms. During construction, however, it became clear that the government’s design contours could be achieved only by slip-forming and that the government’s inclusion of a fixed-form specification was a defect. The contractor again claimed that it based its bid on use of the less expensive fixed form specification.
With regard to excavation, the specifications indicated that the project would be balanced (i.e., the quantity of material excavated would be approximately the same as the quantity of fill material required). However, during construction it became clear that the government’s specifications were wrong, and substantial fill was required.
After completion, the contractor presented numerous claims to the contracting officer, seeking an equitable adjustment because the government’s specifications were defective. The contracting officer granted some claims but denied the three claims above. The contractor sought review by the Court of Federal Claims. After a trial, the Court of Federal Claims found in favor of the contractor, granted an equitable adjustment of $1,383,009 plus interest and required the return of liquidated damages. The government appealed. The appeals court affirmed. Ace Constructors, Inc. v. United States, 499 F.3d 1357 (Fed.Cir. 2007).
On appeal, the government did not dispute that some of the drawings and specifications were defective. Rather, it argued that the profilograph claim should have been denied because: 1) the contractor had not presented the identical issue to the contracting officer; 2) profilographic testing was required by the contract; or 3) the contractor recognized the possibility of profilographic testing and did not prove that it based its bid on straightedge testing.
The court rejected the government’s first argument because the claim before it “did not differ significantly” from the claim previously-presented to the contracting officer.
On the issues of which testing method the contract required, the court found that some portions of the contract could be read as making profilographic testing mandatory (using the word “shall”) and other portions could be read as making it optional (using the word “may”). Thus, the court held, the specification could be either ambiguous or defective. The appeals court ultimately found the specification to be defective and affirmed the lower court’s ruling that the government had made a constructive change by requiring some profilographic testing.
The appeals court also concurred in the Court of Federal Claims’ finding that the specifications gave the contractor a choice of testing methods, that the contractor had acted reasonably in basing its bid on the less expensive straight-edge testing method and that the contractor was entitled to compensation as a constructive change for its additional costs when the government required it to use profilographic testing for part of the project.
The government presented similar arguments in opposition to the slip-form claim. The government argued that the contractor had not presented the identical issue to the contracting officer and that the contractor should have known that fixed-form concreting, although specified, was inappropriate to meet the project’s design contours.
Again, the court rejected the government’s first argument because the claim before it was based upon the same operative facts and presented the same issues as the claim previously-presented to the contracting officer.
On the issue of whether the contractor should have known that fixed forms were inappropriate, the Court of Federal claims found that use of the rigid 3-meter forms required by the specifications for fixed forms resulted in contours between specified grade elevation points that were outside specified tolerances. The Court of Federal Claims found, and the government conceded, that the specification was defective because the project actually was designed for slip form paving but the specifications allowed use of fixed forms.
The government argued that the contractor should have known this. The court rejected the argument, noting that although “an engineer or experienced surveyor could have interpolated the panel points” and determined that use of the rigid 3-meter forms would not meet contractual tolerances, a contractor typically is not expected to make such calculations in preparing its bid. Thus, the contractor was reasonable in relying on the fixed-form specification.
In holding the government liable for its defective specification, the court relied on the Spearin Doctrine, which provides that by issuing defective specifications, the government has breached the implied warranty that a contractor’s adherence to the specifications will result in satisfactory performance.
Finally, the government argued that the contractor’s recovery on the Type I differing site condition claim should have been reduced because the contractor should have known that the specification was defective and that substantial fill would be required. However, the court observed that the contractor had hired an expert consultant to assist it in preparing its bid. That expert concluded that the project would be relatively balanced – based on his analysis of the government’s plans. The court held that the contractor had acted reasonably in preparing its bid, had reasonably relied on the government’s defective specification and was entitled to an equitable adjustment.
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