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Court Interprets Ambiguous Contract Against U.S. Government, Allows Roofer’s Claim for Extra Work
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May 10, 2010
By William S. Hale
States Roofing Corp. was awarded a contract by the Navy to re-roof a large existing building in Norfolk, Virginia. In the bidding documents, the roof was divided into 11 cells labeled A through K. As part of its pre-bid investigation, States noted that waterproofing paint was used on the parapet walls of two cells. States assumed in bidding that the parapet walls in all 11 areas were to receive waterproofing paint.
During performance, the Navy told States that the contract required three layers of roofing felt as flashing on the parapet walls rather than paint. When this proved unworkable, the Navy directed States to install a single-layer flashing product. States complied and submitted a claim for the cost difference between painted parapets as-bid and flashed parapets as-built. The Navy denied the claim, and States appealed.
Before the Armed Services Board of Contract Appeals, States argued that the contract was ambiguous and that States’ interpretation was reasonable. It noted, and the Board agreed, that use of paint to waterproof walls is not uncommon and that States had used this method of waterproofing on other government contracts. States pointed out that the Navy admitted “inadvertently” omitting a flashing specification that would have provided clarity. States argued that it reasonably interpreted a drawing detail calling for “Waterproofing Membrane (3 Layers)” as requiring three layers of paint, especially in light of its pre-bid inspection. States also noted that elsewhere in the contract the phrases “3-Ply” and “Multiple-Ply” were used to indicate flashing and that “Layers” should therefore mean something other than flashing.
The Navy argued that the same drawing detail showed three lines and the use of fasteners, thus clearly indicating flashing rather than paint. In addition, the Navy argued that elsewhere in the contract “coats” was used in reference to paint and that “layers” was more like “plies” than “coats.”
The Navy’s roofing expert interpreted the detail at issue as requiring flashing in 9 of the 11 cells while the Navy’s own project architect interpreted the contract as calling for painting of all 11 cells. The Navy disavowed the architect’s testimony before the Board. The Navy did not call the person who drafted the contract as a witness.
The Armed Services Board of Contract Appeals held that as to nine of the areas, flashing was required by the contract, but that States could recover the cost differential on the two areas identified as painted in the pre-bid inspection. The Board held that States erred in assuming that paint could be used on all cells because it had been used on two of them. The Board held that there was no waterproofing specification for the parapet walls in the contract because the Navy had inadvertently omitted one. Even so and despite the various uses of “layers,” “plies,” and “coats” in the contract, the Board held that the detail drawing contained enough indications that felt flashing material was to be used to render States’ interpretation unreasonable or at least to create a patent ambiguity, which required States to inquire about it. Appeal of States Roofing Corp., ASBCA No. 54854 (2008).
The U.S. Court of Appeals for the Federal Circuit reversed. States Roofing Corp. v. Winter, 587 F.3d 1364 (Fed.Cir. 2009).
In interpreting the contract against the Navy, the court reaffirmed the rule of contra proferentem – interpreting a contract against its drafter. The court quoted United Pacific Insurance Co. v. United States, 497 F.2d 1402 (Ct.Cl. 1974) for the rule:
| [I]f a drawing or specification is ambiguous and the contractor follows an interpretation that is reasonable, this interpretation will prevail over one advanced by the government, even though the government’s interpretation may be a more reasonable one, since the Government drafted the contract.
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The appeals court ruled that States’ interpretation of the contract was within the “zone of reasonableness” based on all of the evidence and circumstances. The appeal court pointed to a combination of factors, including: the previous use of paint on the parapet walls, the use of precise terms in the contract to refer to flashing, the Navy’s omission of the flashing specification from the contract and the conflicting testimony of the Navy’s experts.
The appeals court also rejected the Board’s alternative ruling that any ambiguity in the contract was patent and, therefore, required States to inquire. The appeals court characterized patent ambiguities as “obvious,” “gross,” “glaring” or “drastic.” It noted that contractors were not required to clarify all ambiguities, doubts or possible differences of interpretation absent a “clear warning” in the contract. The found that the circumstances did not put States on inquiry notice.
The court held that the Navy’s requirement of flashing material was a constructive change and that States was entitled to the additional costs it incurred in using flashing instead of paint for all 11 areas.
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