by Alexander N. Lamme, Associate

Recently, the Court of Federal Claims issued a decision addressing a wide range of issues which often confronts contractors seeking recovery of damages incurred on federal government construction projects.  The case is Ace Constructors, Inc. v. United States, 70 Fed.Cl. 253 (2006).

This article will examine the Court’s various holdings in Ace Constructors.  In its primary holding, the Court held that the contractor was entitled to an equitable adjustment for the additional costs incurred due to a differing site condition resulting from an inaccurate topographical survey included in the government’s solicitation.  The Court also ruled in favor of the contractor on several other issues, including the adequacy of notice with respect to its differing site conditions claim, its claim of a defective design, and its claim of a constructive change to the contract.

Differing Site Condition Claim

The disputes in Ace Constructors arose out of a contract the U.S. Army Corps of Engineers (the “government”) awarded to Ace Constructors (“Ace”) under which Ace agreed to construct an ammunition facility at Fort Bliss to be used to store and transfer ammunition to cargo aircraft.  The project required the construction of a concrete loading apron of approximately 9.5 acres and a 1,500-foot taxiway.  The government’s solicitation included plans that superimposed the elevations required for the finished project over an aerial topographical survey of the site.  In preparing its bid, Ace estimated from the government’s plans that the site was balanced (i.e, the amount of fill needed for the project was approximately equivalent to the amount of fill to be excavated on the project site) and, thus, no importation of soil from offsite was contemplated.

After the contract was awarded, Ace retained a subcontractor to perform a topological survey of the project site.  The topological survey indicated that the government’s plans were inaccurate in that the elevations depicted on the plans were lower than the actual elevations on the site.  Accordingly, rather than there being a balanced site as shown on the government’s plans, the project would require the importation of fill from off-site.  After examining the topological survey, Ace orally notified the contracting officer of the necessity of obtaining additional fill and submitted a Request for Information, which estimated that 125,000 cubic yards of additional fill would be required to construct the project.  As directed by the government, Ace obtained the additional fill by increasing the size of retention ponds on the project and by importing fill from off-site.  Overall, Ace was required to obtain approximately 129,000 cubic yards of additional fill as a result of the government’s erroneous plans.

Upon completion of the project, Ace filed several claims with the government under the Contract Disputes Act seeking recovery of additional costs incurred on the project.  Ace included a claim for differing site conditions that Ace maintained had resulted from the inaccurate site elevations included in the government’s solicitation.  Specifically, Ace asserted that because the plans included in the government’s solicitation provided erroneous elevations, the lower site elevations actually encountered constituted a Type 1 differing site condition.

As the Court noted on appeal from the contracting officer’s denial of Ace’s claims, in order to demonstrate entitlement on a Type 1 differing site condition claim, a contractor must establish by the preponderance of the evidence that “[1] the conditions indicated in the contract differ materially from those actually encountered during performance; [2] the conditions actually encountered were reasonably unforeseeable based on all information available at the time of bidding; [3] the contractor reasonably relied upon its interpretation of the contract and contract-related documents; and [4] the contractor was damaged as a result of the material variation between expected and encountered conditions.” The Court determined that Ace had satisfied its burden of establishing a Type 1 differing site condition.  In that regard, the Court held that Ace incurred substantial damages because the site conditions actually encountered by Ace were unexpected and differed materially from the conditions indicated in the government’s plans.  Additionally, the Court found that the actual conditions encountered were reasonably unforeseeable to Ace at the time of bidding.

Importantly, the Court rejected the government’s argument that Ace had failed to provide adequate and timely notice of the differing site condition.  The government argued that Ace had failed to give prompt, written notice of the differing site condition as required by the contract’s differing site condition clause.  In rejecting the government’s notice argument, the Court held that notice was adequately conveyed by Ace through its verbal conversations with government representatives and by its submission of the Request for Information, which indicated that an additional 125,000 cubic yards of fill were required.  Despite the contract’s stated requirement that written notice be provided, the Court indicated that “notice need not follow any specific format, but must merely make the Contracting Officer aware of the differing site condition.” Additionally, the Court noted that even where a contractor fails to provide adequate notice, a claim will not be barred unless the government can affirmatively demonstrate that it was prejudiced as a result of the lack of notice.  In rejecting the government’s notice defense, the Court held that the government had failed to demonstrate any prejudice resulting from its claimed lack of notice.

Based upon its determination that Ace had established a Type 1 differing site condition, the Court awarded Ace its additional labor and equipment costs (including a percentage markup for home office, field office and profit) resulting from the differing site condition.  The Court also held that Ace had established a claim of constructive acceleration by demonstrating that the government’s refusal to grant Ace a time extension, combined with the government’s threat to assess liquidated damages, forced Ace to work expanded overtime.  The Court awarded Ace its lost productivity costs associated with the constructive acceleration.

Defective Design

In addition to its differing site condition claim, Ace asserted claims seeking recovery of damages incurred by what Ace claimed were defective specifications.  Specifically, Ace claimed that the government’s design was defective because the contract explicitly provided that the contractor was entitled to select either of two alternate methods of construction, but the plans and specifications were written only for one of the construction methods.  Specifically, while the contract allowed Ace to select between slip-form and a fixed-form type of paver, the plans and specifications were designed only for the use of the slip-form paver.  Ace incurred substantial costs attempting to use the fixed-form paver.  Despite Ace’s efforts, the project could not be successfully constructed using the fixed-form paver.  Accordingly, Ace asserted that the design was defective.

The government disputed that the design was defective by claiming that Ace was capable of constructing the project using the plans and specifications provided.  The court disagreed.  Specifically, the Court held that the government breached the implied warranty that satisfactory performance would result from adherence to the specifications because the project could not be constructed using the approved method of performance selected by Ace.  Accordingly, the Court agreed with Ace that the government’s design was defective and awarded Ace the reasonable costs, including delay damages, arising from the defective specification.

Constructive Change

Ace also asserted a claim for a constructive change arising from the government’s requirement that Ace’s subcontractor use profilograph testing to evaluate the smoothness of concrete where the contract provided two alternative methods that the contractor could use to perform the testing.  As the Court noted, a constructive change arises where the government orders the contractor to perform work that is not specified in the contract documents.  Here, the Court held that because the specification provided two alternatives for testing by the contractor, the government’s requirement that Ace use the government’s chosen method of testing was tantamount to an order to perform work not required by the contract and, thus, constituted a constructive change.

Conclusion

As noted at the outset, the decision in Ace Constructors is a wide ranging ruling on issues typically confronting contractors constructing projects for the federal government.  Assuming the decision withstands any appeal, contractors may rely on this case for favorable rulings on Type 1 differing site conditions claims and notice, defective design claims, and constructive change claims.  It is worth a reading. 

The information or opinion provided in this article is the author's own and not necessarily that of Watt, Tieder, Hoffar & Fitzgerald, LLP. The author is solely responsible for the information and opinion that he or she has provided. The information contained herein does not replace seeking specific legal counsel to directly address individual client needs.

Watt, Tieder, Hoffar & Fitzgerald is one of the largest construction law firms in the world, with a practice that encompasses all aspects of construction contracting, claims and disputes resolution, and transactional legal services. WTHF principally represents large general contractors, design firms, and sureties throughout the country and internationally.