ASBCA appeal of the government’s denial of various claims arising out of a construction contract is sustained in part where the contractor’s bid and costs were reasonable, the agency delayed in issuing a notice to proceed, the agency gave conflicting instructions about items it wanted built, and where the contractor acted in accordance with agency responses to numerous pre-bid questions from offerors. The appeal is denied in part where delays were caused by the contractor’s failure to lock in prices for subcontractors, and where the contractor did not provide sufficient evidence for its claims to meet its burden of proof. In addition, the board held the contractor was entitled to interest on its claims even though the appeal involves a Non-Appropriated Fund Instrumentality.
Parsons Evergreene LLC had a contract with Air Force Material Command to design and construct a Temporary Lodging Facility and Visitor Quarters at McGuire Air Force Base in New Jersey. The construction project had two phases: (1) a concept definition phase, and (2) a design completion and construction phase. Parsons was the contractor for the second, design and completion phase. In the first phase, another contractor created a “35 percent design”—essentially a conceptual design of the project that omitted several details. In the second phase, Parsons was to complete the remaining 65 percent of the design and construct the Lodging Facility and Visitor Quarters.
The project experienced several delays, but Parsons completed construction. After it finished, however, Parsons submitted eights claims to the Air Force, seeking about $28 million in delay costs and overruns. Parsons alleged that the government was liable for damages due to, among other issues, design flaws, differing site conditions, and scheduling delays. The Air Force allowed for $89,237 in differing site conditions costs, but denied the rest of Parsons’ claims. Parsons then appealed to ASBCA.
At the outset, the board addressed Parsons’ argument that the Air Force had raised new arguments in its closing brief that the company had not been able to challenge during trial. The board opined that these new arguments were likely the result of the electronic filing rules, which make it easy for parties to “dump” so many documents into evidence that they do not know what is in the record. Thus, what may appear to be a new argument was technically part of the record. Despite recognizing this problem, the board held that the documents were in the record and thus fair game.
As a general defense to the appeal, the Air Force contended that because the actual costs of the project were double Parsons’ bid, the bid must have been unreasonable and thus the company’s claims had been properly rejected. The board was not persuaded, finding that the Air Force’s pre-award dealings were not entirely appropriate. To be sure, Parsons’ bid had been the lowest, but the Air Force did not point out to Parsons the disparity between its bid and those of the other bidders. There was no evidence in the record that the Air Force ever considered alerting Parsons to a mistake. Rather, the agency was more concerned with trying to fit Parsons’ bid within an authorized price. Having rejected other bids as too expensive, the Air Force could not now claim that the pricier bids were evidence that Parsons’ had been unreasonable.
The board similarly rejected the Air Force’s argument that Parsons’ costs had been unreasonable. The board reasoned that a blanket challenge to a contractor’s costs is insufficient to challenge those costs. Instead, an agency must challenge the reasonableness of specific costs. Here, the Air Force simply challenged the reasonableness of all Parsons’ costs without identifying anything specific.
Having addressed the Air Force’s more general defenses, the board turned to Parsons’s specific claims. In its first claim, Parsons sought $772,176 to recover costs expended on design work to prevent progressive collapse from occurring in the Visitor Quarters. Progressive collapse occurs when a primary structural element fails and weight is transferred to another structural element, which itself fails. The Air Force argued that Parsons was not entitled to these costs because the re-design for progressive collapse had deviated from the 35 percent design, and Parsons lacked authority to deviate from that design.
The board agreed with the Air Force, finding that the RFP required Parsons to adhere to the 35 percent design. However, the board noted that in pre-bid questions, bidders had expressed concern that the 35 percent design did not satisfy progressive collapse requirements. In response, the Air Force had stated that “the drawings are concept only. You [the bidder] have the responsibility to generate construction details and drawings.” The board believed this answer told bidders they could deviate from the 35 percent plan and thus conflicted with the RFP. Citing COFC caselaw, the board reasoned that pre-bid questions and answers are highly relevant in interpreting contract provisions. Accordingly, Parsons was entitled to rely on the agency’s answer, which bestowed upon the company the right to deviate from the 35 percent design with respect to progressive collapse. The Air Force was responsible for the additional design costs incurred to deal with progressive collapse.
The board next addressed Parsons’ claim for delay costs arising from (1) the Air Force’s lag in issuing a notice to proceed, (2) environmental contamination, (3) unsuitable fill at the worksite, (4) removal of organic materials, and (5) removal of an asbestos pipe.
The board had no trouble finding that the Air Force had procrastinated in issuing the notice to proceed and that Parsons was therefore entitled to $118,720 in extended overhead costs.
The environmental contamination and unsuitable fill portions of the claim arose from a swimming pool that had previously occupied the worksite. Before Parson began construction, the Air Force hired another contractor to demolish and remove the swimming pool. In response to pre-bid questions, the Air Force had represented that the site would be “clean and ready for construction.” It turned out, however, that the site had been contaminated from the pool and that the fill used for the demolished pool was rife debris and trash. The Board found that Parsons was entitled to rely on the Air Force’s representations of a clean site and thus entitled to recover its costs due to the contamination.
Parsons also found a layer of organic material—wood, leaves, etc.—about five feet below footings for the building. Parsons concluded it needed to remove this material because as it decomposed it could result in differential settlement of the footings. Air Force personnel disagreed about the necessity of removing the organic material. Parsons ended up removing the material without the Air Force’s permission. The board found that the Air Force did not have the right to second guess the risk of this organic material and therefor had to reimburse Parsons the costs of its removal.
Parsons also suffered 90 days of delay removing an asbestos pipe. Parsons sought to recover delay expenses, claiming the asbestos pipe was a differing site condition. The Air Force disputed this, noting that the pipe was included in drawings given to Parsons. The board agreed that the drawings showed the pipe, but they did not disclose that the pipe was insulated with asbestos. The removal of the asbestos caused unforeseen costs and delay. Parsons was entitled to recover over $100,000 for dealing with the pipe.
Parsons also asserted a differing site condition claim for underground utilities that were not in the Air Force’s drawings. The Air Force claimed that because the 35 percent design did not actually extend to the location of these utilities, the agency had made no misrepresentation concerning the utilities. Although the 35 percent design did not show the utilities, the board found that another set of drawings, which had been given to bidders before award, and which included the area in question, had misrepresented the location of the utility lines. The Air Force was liable for the differing site condition costs.
The parties also disputed liability for almost $600,000 in cost overruns on wall coating in the Visitor Quarters. Parsons had applied paint, but the Air Force insisted the company use Triarch wall coatings. The board found that the RFP required Triarch wall coatings. Accordingly, Parsons was not entitled to the cost of purchasing and applying Triarch. Nevertheless, the board also found that the Air Force had created confusion about the wall coatings. Drawings for the Visitors Quarters specified paint, and the contracting officer had approved the use of paint. The board found that this confusion created a critical path delay for which the Air Force owed Parsons $270,960.
Parsons also sought recover of $248,390 arising from a storm water drainage pond. The 35 percent design required that Parsons construct the pond. It turned out, however, that there was groundwater less than a foot below the pond. To remedy this, Parsons had built an additional underground detention system without Air Force approval. Parsons sought the cost of the detention system, but the Air Force contended that any problems with the pond were due to Parsons’ poor design. This matter was further complicated by the fact that officials at the base where the project was located did not want a pond because it would attract birds close to the base’s runway. The board found that Air Force was liable for the costs of the underground retention system. By keeping the pond in the 35 percent design despite the being told remove it by the base officials, the Air Force assumed the risk that the pond would not be allowed after the award of contract. Under the circumstances, Parsons only choice was to build the detention system without permission and then file a claim.
As part of its various claims, Parsons requested that the Air Force reimburse it for almost $4 million in subcontractor overruns. Parsons had not locked in its subcontractor bids when it submitted its proposal. By the time Parsons got around to finalizing its subcontracting arrangements, prices for materials had increased. The board found that the causes of these price increases—Chinese competition, Hurricane Katrina—were foreseeable. Parsons should have known that its delay in locking in subcontractors could lead to price increases, and yet it went forward with this open-ended subcontracting arrangement anyway. The board ruled the Air Force was not liable for these expenses.
Parsons next claim was for $5.6 million for 118 subcontract change orders. Due to time constraints, however, Parsons did not present testimony on the change order; rather it presented an analytical breakdown of the change orders. But the board declined to accept Parsons’ word on the allocations, reasoning that each change order must stand on its own. After reviewing each changed order individually, the board concluded that Parsons was only entitled to $2,009,426 on its change order claims.
The board then considered Parsons claim for over $2.5 million for extra work coded during the project. This included tasks such as claim preparation costs, response to cure notices, and extra warranty work. The board reviewed each of these categories and found that Parsons was only entitled to a fraction—about $180,000—for these claims. For the most part, Parsons had failed to present enough evidence for these claims to meet its burden of proof.
Parsons claimed $4.6 million in costs for constructive acceleration. A constructive acceleration occurs when the government requires a contractor to adhere to a performance schedule even though the contractor is entitled to an extension due to excusable delay. The board found several excusable delays due to clean site concerns, unsuitable fill at the worksite, organic materials in the ground, asbestos pipe, and wall coating issues. Despite the delays, the Air Force refused to extend the delivery date. The board found this amounted to a constructive acceleration, but because Parsons presented little evidence substantiating its claims for non-labor costs, the board only awarded $2.5 million for the acceleration.
In addition to the $700,000 in design costs to deal with progressive collapse, Parsons sought an additional $1.9 million for costly changes to other parts of the building to prevent progressive collapse. The board reasoned that Parsons was entitled to recover these costs, but that it had not presented sufficient evidence of its damages.
Continuing with Parsons’ claims, the board awarded Parsons costs for the Air Force’s delay in approving roof trusses, and for direct costs due the agency’s failure to close out the project in a timely manner. But the board denied additional claims for delay in issuing a design notice to proceed and delay in approval of submittals due to Parsons’ failure to satisfy its burden of proof.
Moreover, the board declined to award Parsons costs associated with resolving payroll omissions and a resulting investigation from the Air Force’s Office of Special Investigation. The board determined that Parsons, not the Air Force, was in the best position to discover the payroll omissions, so it should bear the costs. Also, Parsons had not proven the Air Force was in any way responsible for the investigation by the Office of Special Investigation.
Finally, the board considered whether Parsons was entitled to recover interest on it claims. The board noted that the Air Force division Parsons was dealing with, the Air Force Services Agency, was a non-appropriated funds instrumentality. For many years, under the “NAFI doctrine,” the Federal Circuit held that the Contract Disputes Act did not grant the COFC and Boards of Contract Appeals jurisdiction over matters involving NAFIs. Thus, the board would only consider appeals involving NAFIs if the parties to the appeal had contractually agreed to the board’s authority. Due to this lack of jurisdiction, the board had traditionally held that even in cases where the parties had agreed to the board’s authority to decide the matter, the board did not have authority to award interest in appeals involving a NAFI.
However, the Board reasoned, in Slattery v. United States, 635 F.3d 1298 (Fed. Cir. 2011), the Federal Circuit held that the NAFI doctrine no longer applied to lawsuits brought under the Tucker Act. The Slattery court reasoned that it was not clear Congress had intended to exempt all NAFIs from Tucker Act Jurisdiction. A subsequent Federal Circuit case, Minesen Co. v. McHugh, 671 F.3d 1332 (Fed. Cir. 2012), intimated that the NAFI doctrine may no longer apply to cases brought under the Contracts Disputes Act, but the court determined it did not need to resolve that issue. A dissenting judge in Minesen, however, argued that the Slattery’s reasoning should also apply to cases brought under the CDA. While recognizing that this was a dissent, the board found its logic compelling. Moreover, the board noted, the Minesen majority did not reject the dissent. Thus, the board concluded that the NAFI doctrine no longer applied to cases brought under the CDA. Thus, claimants, like Parsons, could now recover interest in appeals involving a NAFI.
The board sustained in part and denied in part, Parsons’ claim. Out of the more than $28 million Parsons claimed, the board awarded it $10.5 million.
Two administrative law judges added a concurrence taking issue with opinion’s interpretation of FAR 31.201-3(a) as prohibiting an agency’s blanket challenge to a contractor’s costs. The concurring judges reasoned that a claimant always bears the burden of establishing the reasonableness of costs without the aid of the government’s failure to specifically challenge costs.
Parsons is represented by Douglas S. Oles, James F. Nagle, Adam K. Lasky, and Howard W. Roth of Oles Morrison Rinker & Baker LLP. The government is represented by Jeffrey P. Hildebrant and Michelle D. Coleman of the United States Air Force.