A. Contract Interpretation
Recent case decisions highlight the importance of reading and understanding contract requirements and terms. Not only do they have to make sense to the contractor to bid and perform properly, they have to make sense to the judge who will be the ultimate decision maker if the parties disagree on what the contract actually says. Lately, we see a renewed emphasis by courts and boards in looking to the "ordinary" or "plain" language of the contract document, rather than forging into a detailed analysis of the differing interpretations of the government and the contractor.
The Federal Circuit's decision in LAI Services, Inc. v. Gates, 573 F.3d 1306 (Fed. Cir. 2009) is a good example of this. The dispute centered on whether the contract required that off-base trans-shipments be packed and packaged under the "minimum military requirements" in CLIN 0001 or under the more expensive methods in CLIN 0002. The Armed Services Board of Contract Appeals denied the contractor's claim that it was entitled to higher payment under CLIN 0002, finding that the language in the two CLINs created a patent (obvious) ambiguity that triggered a duty on the contractor to inquire about it at the start. Since the contractor had not so inquired, the Board rejected the contractor's claim. On appeal, the Federal Circuit disagreed, stating the rule that an ambiguity can exist only where the contract language supports more than one reasonable interpretation. The Court studied the plain language of the CLINs in great detail, along with conforming references throughout the contract, and found that the contract supported only one interpretation – that of the contractor.
The Court of Federal Claims in C.R. Pittman Construction Co., Inc. v. U.S., COFC No. 08-196C, March 10, 2010, also looked to the "plain and ordinary meaning" of the contract language in deciding that equipment damaged by Hurricane Katrina was the contractor's responsibility. The Army Corps of Engineers had awarded the fixed-price contract to build pumping stations in the New Orleans area. The contractor stored generators, pumps, and other equipment and materials for the project at an off-site facility. When the facility and its contents were flooded in the hurricane, the contractor claimed that the Corps was responsible for the damage under the terms of the "Damage to Work" clause in the contract which held the Corps responsible for damage to "any part for the permanent work." The contractor argued that uninstalled equipment that would eventually become part of the pumping stations was "part of the permanent work." The Court disagreed, stating that the ordinary meaning of the language "part of the permanent work" cannot include uninstalled, unincorporated equipment.
In F.A. Wilhelm Construction Co., CBCA No. 719, 09-BCA ¶ 34228, the Civilian Board of Contract Appeals considered who was required to supply the equipment and components for the nurse call system for construction at a VA medical center in Indianapolis. The nearly $20 million fixed-price contract called for the "furnishing, installing, and testing of a complete and operating [nurse call] system, and associated equipment." The conflict arose in reading this against a specification providing that the government was to furnish property in a drawing that stated "all nurse call system components shall be Owner furnished, and Contractor installed." Noting that a contractor proceeds at its own risk if it relies upon its own interpretation that it believes to be ambiguous, the Board examined the plain language of the various contract specifications, along with the contract's Order of Precedence clause, and held that the contract required the contractor to provide the entire system, including all components.
Also, we seem to be in an era where judges narrowly construe contract language, sometimes leading to harsh results for one or the other party. For instance, in Bell BCI Co. v. U.S., 570 F.3d 1337, the contractor was denied over $6 million for delays and cumulative impact associated with extra construction work performed at the National Institutes of Health because it had signed off on modifications releasing the government from "any and all liability" for adjustments not specified in the modifications themselves.
In General Dynamics C4 Systems, Inc., ASBCA No. 54988, 09-2 BCA ¶ 34,150; ASBCA No. 56862, 09-2 BCA ¶ 34243, it was the government that suffered the loss when it failed to issue delivery orders as required under the contract. Finding that this failure should be treated like an invalid exercise of an option and deemed a constructive change, the Board held that the contractor was entitled to its actual costs plus a reasonable profit – well over $40 million above the fixed unit prices called for in the contract.
Though the majority of recent cases seemed to turn on the decision maker's view of the "plain meaning" of the contract, the Federal Circuit in States Roofing Corp. v. Winter, Sec'y of the Navy, 587 F.3d 1364 (Fed. Cir. 2009), only mentioned the rule in passing before conducting its detailed analysis. In its attempt to determine whether the contract called for waterproof paint, or the more expensive felt flashing, for a roofing project at a Naval facility in Norfolk, VA, the Court found conflicting language, giving rise to a latent ambiguity. With that, the Court examined the parties' differing interpretations, found the contractor's interpretation to be within the "zone of reasonableness," and enforced that reading against the government, the drafting party.
B. Government Direction/Authority to Bind
Several recent cases help remind us that contractors should only rely on statements of government personnel who have the actual authority to bind the government. In one case, the contractor relied to its detriment on the government engineering supervisor's direction to place additional safety personnel on the job site. The supervisor had no authority under DFAR 252.201-7000, which was incorporated into the contract, so the contractor was denied its cost for the additional personnel. See States Roofing Corp., ASBCA Nos. 55500, 55503, 09-1 BCA 34,036.
On the other hand, in Southern Mail Services, PSBCA No. 5322, 09-2 BCA 34244, the contactor could recover costs approved by the contracting officer's representative (COR) because the COR had authority to bind the government under the USPS Management Instruction referenced in the contract.
Contractors may also be denied recovery for the cost of work performed in reliance on unauthorized government personnel, even when the contract does not speak to their authority. See Hambone Constr., Inc. CBCA No. 1566, 09-2 BCA 34258 (government engineer was without authority to bind the government to his statement that the contractor would be paid for materials as a change after award); Biofunction, LLC. V. U.S., 92 Fed. Cl. 167 (2010) (representation of U.S. Postal Service district manager to contractor did not bind the government to pay for contractor's additional work).
C. Duty of Good Faith and Fair Dealing
Government contract law imposes an implied duty on the parties to act in good faith and engage in fair dealing. When the government breaches this duty, the breach can give rise to a constructive change, entitling the contractor to an adjustment in the contract price and/or schedule under the Changes clause. Recently, the Federal Circuit significantly raised the bar for contractors attempting to recover under this theory. In Precision Pine & Timber, Inc. v. U.S., 596 F3d 817 (Fed. Cir. 2010), the contractor experienced costly delays because of the government's poor administration of a timber sale contract. Acting contrary to government contract decisions in the past, the Federal Circuit adopted the higher standard and denied the contractor recovery because (1) the government did not specifically target the contractor, and (2) the delay did not function to reappropriate any benefit guaranteed the contractor under the contract.
D. Contractor Challenges to Past Performance Evaluations
It was not until recently that a contractor's right to challenge an unfair or inaccurate performance evaluation beyond the agency level was recognized. In both Record Steel and Constr. Inc. v. U.S., 62 Fed. Cl. 508 (2004), and BLR Group of America, Inc. v. U.S., 84 Fed. Cl. 634 (2008), the Court of Federal Claims found that it had jurisdiction to entertain such challenges when the contractor had established jurisdiction by first referring the matter to the contracting officer for a final decision. The Court in those cases recognized the importance of a contractor's performance rating and acknowledged that contractors are entitled to a fair and accurate evaluation.
In its most recent case on the subject, the Court clarified the standard, making it more difficult for contractors seeking relief from a negative performance evaluation. Todd Construction, LP v. U.S., 88 Fed. Cl. 235 (July 22, 2009). In Todd, the Court restricted its authority to issuing a declaratory judgment when a contracting officer's evaluation is arbitrary and capricious, and to remanding the matter back to the contracting officer to assign a proper rating based on the record or to rebuild the record to substantiate the negative ratings. At the same time, the Court allowed less deference to the agency when considering whether it complied with its required procedures in preparing the performance evaluation.
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