Ambiguous Contract Clauses Require Further Development of the Record; ASBCA No. 61524, Appeal of General Dynamics—National Steel and Shipbuilding Company

Cross motions for summary judgment on a matter of contract interpretation are denied, where the contract contained ambiguous language governing growth work in addition to the fixed-price work required by the contract. Because each party had a reasonable interpretation of the language, the board held it must consider extrinsic evidence to determine the parties’ intent, which precluded summary judgment.

General Dynamics—National Steel and Shipbuilding Company sought the board’s judgment on a matter of interpretation of clauses in its contract to provide drydock maintenance and repairs about a Navy vessel.

The fixed-price contract required NASSCO to accomplish defined work items. However, it also provided for growth work—tasks the government might assign in addition to the defined work, which NASSCO committed to perform at a fixed-labor rate and material-burden percentage. The parties disagreed on whether certain disputed clauses that required reservations of labor and material were for growth work.

The dispute involved six work areas related to diesel generator servicing. Under these work items, several subparagraphs required NASSCO to accomplish specific tasks, and subsequent language required NASSCO to reserve additional workforce time and funds to complete growth work. For example, work items 24 and 25 required the contractor to provide 100 staff days of labor and $50,000 of material to accomplish work not already covered by these items.

However, work items 21, 23, and 26 required NASSCO to provide 60 staff days of labor and $16,000 of material to accomplish the work. The subparagraphs did not state this reservation was intended for work not already covered by these work items.

NASSCO submitted a request for an equitable adjustment, claiming that it was entitled to an equitable adjustment for any work on work items 21 through 23 and 26 requiring more than 60 labor days or $16,000 of materials. The government denied this request and a subsequent certified claim.

Both parties moved for summary judgment, arguing that the contract language clearly supported their interpretation of the clauses. However, the board disagreed, finding the language ambiguous.

NASSCO interpreted the disputed clauses as being pre-priced reservations that capped the defined work in each work item. The government interpreted the clauses as creating growth reservations, or pools, that NASSCO may have to provide in addition to the defined work. ASBCA found both interpretations reasonable, precluding summary judgment.

The clauses required NASSCO to provide 60 staff days of labor and $16,000 dollars of material to accomplish the work item, as designated by the supervisor. The board found this language did not spell out the relationship between the disputed reservation clauses and the defined work clauses by specifying whether the reservations are in addition to, or cap, the defined work. For example, the disputed reservation clauses clearly would be growth reservations if they stated, “provide an additional 60 days of labor and $16,000 of material to accomplish this work item.” Conversely, the clauses clearly would not have been growth clauses if they had stated, “provide 60 days of labor and $16,0000 of material to accomplish the work” set out in the above paragraphs. Because the language did not specify the relationship between the reservation clause and the work clause, the board found it ambiguous.

Further, the board held that the statement “to accomplish this Work Item” did not provide such specificity, as it did not indicate that the reservations are to accomplish the defined work. Rather, the language merely stated that the purpose of the reservations is to accomplish the particular work items. It did not indicate whether the reservations are all that NASSCO has to provide to accomplish the work items, or whether the reservations are in addition to the defined work that NASSCO has to provide to accomplish the work items.

Further, language in reservation clauses that were not in dispute highlighted the ambiguity. For example, the undisputed reservation clauses identified growth work as “additional work not already covered by this work item,” while the clauses in dispute referred only to “this work item.” The board held this suggested the two sets of clauses set different types of reservations. However, the similarity in the structure of the clauses—several paragraphs of defined work followed a separate subparagraph creating a reservation—suggests all the reservations served the similar purpose of providing for growth work. Thus, the board found that the ambiguity could not be resolved by comparing the disputed clauses with those not in dispute.

The board held that it must rely on extrinsic evidence to determine the parties’ intent, and that the parties disputed issues of material fact, which precluded summary judgment for either party.

General Dynamics—National Steel and Shipbuilding Company is represented by William M. Pannier of Pannier Law, PC. The government is represented by Craig D. Jensen, Navy Chief Trial Attorney, and Brian S. Smith, Senior Trial Attorney.