Contract performance

Army Lawyer, Jan, 2005 by Steven Patoir, Andrew Kanter, Michael Benjamin, James Dorn

Contract Interpretation/Changes

The Test for Recovery Based on Inaccurate Specifications is Whether Errors Misled the Contractor

In Turner Construction Co., (1245) the CAFC stated that the test for recovery based on inaccurate government specifications is whether the errors misled the contractor. Applying this test, the CAFC held that Turner Construction Co. (Turner) acted as a reasonable and prudent contractor, correctly interpreted the contract specifications and drawings, and was entitled to additional costs. (1246)

Boston's Department of Veterans Affairs (VA) hospital awarded Turner a contract to build a new wing to its hospital. A dispute arose concerning exactly what fire-rated electrical feeders and panel boards had to be installed in the operating room. The VA insisted that the contract (1247) and its specifications and drawings and the local (1248) and national (1249) electrical codes required Turner to install certain fire-rated emergency systems in the operating room. Turner disagreed, countering that the explicit contract specifications and electrical drawings did not identify the operating room as part of the hospital's emergency electrical system. (1250) The VA ended the initial disagreement by ordering Turner to install the fire-rated emergency equipment in the operating room. Turner complied and then submitted a claim for additional costs. The VA denied Turner's claim and this litigation followed. (1251)

Turner appealed to the COFC, arguing the VA materially altered the contract in requiring the work and was thus liable for additional costs resulting from the work. (1252) The COFC did not agree with Turner's interpretation. The COFC found the contract was not ambiguous in requiring the work since the work, as directed by the VA, was necessary in order to conform to state electric code requirements. (1253)

On appeal, a divided CAFC reversed. (1254) The majority observed that the "test for recovery based on inaccurate specifications is whether the contractor was misled by these errors." (1255) For the majority, the specifications and drawings were clear that the additional work was not required. Turner's reading of the contract in conjuncture with the code requirements was, for the majority, "that of a prudent contractor." (1256) Dissenting from the majority, Judge Mayer agreed with the COFC's ruling that the contract fully defined the electrical system to include the work ordered by the VA. (1257)

Is Ambiguity Latent or Patent? Look for "Zone of Reasonableness"

In NVT Technologies, Inc., (1258) the CAFC addressed the methodology for determining whether an ambiguity is patent or latent. In sum, the analysis rests on whether the ambiguity falls within the "zone of reasonableness." That is, does the ambiguity support one interpretation or more? (1259)

After participating in a study pursuant to OMB Circular A-76, NVT protested the government's decision to retain the services in-house. (1260) NVT argued that an ambiguity in the solicitation unfairly caused its proposal to be more expensive than the government's most efficient organization's (MEO) proposal. More specifically, NVT argued the solicitation did not alert offerors that the pricing methodology for ceramic work differed from the remainder of the contract. (1261)

The COFC determined that the solicitation was only subject to one interpretation and concluded that the government's interpretation was the only reasonable one. Alternatively, even if NVT's interpretation was reasonable, the ambiguity was patent and therefore NVT had a duty to clarify the ambiguity prior to the proposal due date. (1262)

NVT appealed this ruling. The CAFC considered the issues and determined that the government's and NVT's interpretations were both within the "zone of reasonableness." (1263) The court found NVT's interpretation reasonable because NVT "applied the same logic to the thirteen disputed line items as applied to the hundreds of other line items present in the schedule," "the schedule [did not advise] that the data in the 'Number' and 'Frequency' columns were to be treated differently for the thirteen items in question," and that "the amount of the work [NVT projected] was not wholly unreasonable." (1264)

Despite this initial good news for NVT, its glee was short lived. In addition to CAFC's "zone of reasonableness" finding, the court also ruled that the ambiguity was patent and that NVT could not recover because it failed to clarify the patent ambiguity. (1265) Specifically, the court held "Where, as here, a certain set of line items is expressed in a manner so different from hundreds of other line items, yielding results disproportionate to the remainder of the solicitation, we find the differences to be obvious, gross, [or] glaring, requiring NVT to inquire." (1266)

All Things Being Equal, the Simpler Explanation is Probably True

In L.W. Matteson. Inc., (1267) the COFC provides a solid review of contract interpretation principles. This case arose because the plaintiff, L.W. Matteson (Matteson), an experienced government contractor and hydraulic dredging company, felt the Army COE caused it to incur significant cost overruns. Matteson alleged that the COE failed to notify Matteson of local opposition to the proposed dredging and of pertinent local environmental laws. This failure forced Matteson to change its proposal after contract award, which resulted in an unexpected financial loss. (1268)