Contractor Alleged Constructive Change, But Board Finds Company Didn’t Follow Contract’s Terms; Appeal of CBRE Heery, Inc., ASBCA No. 62420

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Appeal of a constructive change claim is denied. The contractor alleged the government changed the contract by directing it perform work replacing the door and walls of a storage room that was outside the scope of the contract. The board found that the work was not outside the scope of the contract. The contract required a storage vault. Governing codes and standards required a certain type of door and walls for a vault. Rather than changing the contract, the government merely directed the contractor to perform work required by the contract.

The Army Corps of Engineers issued an RFP to design and build a medical clinic at an Air Force base. The RFP required the awardee to build a storage room. The RFP documents were inconsistent about whether the storage was to be a vault. The program for design (PFD) stated that storage room should be a “Secure Storage, Vault,” but the PFD also assigned the room a code for a storage cage. Likewise, the RFP’s drawings labeled the room as a vault, but also indicated a cage with dashed wall lines. This was important because the applicable code—the United Facilities Criteria—required different specifications for a vault and a storage cage.

CBRE Heery submitted in a proposal in response to the RFP. Heery’s proposed drawings were also somewhat inconsistent, labeling the storage room as a vault but representing with dashed-wall lines. Still, the Corps awarded the contract to Heery.

Shortly after award, Heery, the Corps, and the Air Force held a design charrette—i.e., a meeting in which stakeholders in a project attempt to resolve conflicts. During the meeting Air Force representatives clarified that the storage room would be used for the storage of narcotics. Thus, the storage room needed to be a vault. The parties replaced the dashed-line walls in the drawings with solid lines to represent a vault and corrected the code in the PFD to reflect a vault.

Heery’s design drawings labeled the storage room as vault, and its design analysis acknowledged that the code for the room had changed from the code for a storage cage to the code for a vault. Despite labeling the room as a vault, the design drawings did not comply with the code requirements for a vault. Specifically, they did not specify the right type of door and nor the reinforcement required for the walls.

But the government approved the design plans, and Heery constructed the room with the wrong door and the wrong walls. The Air Force eventually discovered the flaws and directed Heery to fix the door and the walls. Heery complied.

Heery finished construction of the medical clinic 669 days behind schedule.. As a result of the delay, the Corps withheld over $1 million in liquidated damages.

Heery submitted a claim to the Corps seeking the costs of the door and wall replacement as a government-directed change. The Corps denied the claim. Heery appealed to the ASBCA.

Heery contended that the work it did replacing the door and walls in the storage room was a constructive change. A constructive change occurs when the government directs a contractor to perform work that differs from the work specified in the contract. Heery argued that the contract did not require it to adhere to the code standards for a vault when designing and building the storage room.

The board rejected this argument. While the original RFP documents were inconsistent, the parties, during the design charrette, had interpreted the contract documents as requiring the storage room to be a vault. The government had corrected the drawings to use solid lines, corrected the PFD to use the code for a vault, and told Heery that the room would be sued to store narcotics, which require a vault. Indeed, Heery’s minutes of the charrette stated that the room would be a vault for the storage of narcotics.

Also, the contract documents specifically stated that vaults used for the storage of controlled substances had to comply with a code for controlled substance vault standards. Those standards required a certain type of door and walls. Thus, the government did not direct Heery to perform work outside the scope of the contract when it asked the company to build a room in accordance with the vault standards.

Heery argued that the use of the terms vault had no legal significance. The board rejected this argument, noting that the United Facilities Code assigned significance to the term “vault” by imposing particular requirements for a vault.

Heery argued that the government never informed the company that it had changed the storage room’s code from a cage to a vault. The board noted that this was simply not the case. The government had expressly revised the PFD during the charrette.

The board further reasoned that even if the government had changed its requirements, it would not have caused Heery’s delay. If there had been a change, it occurred at the design charrette before Heery even began construction.

Heery contended that the government could not demand strict compliance with the vault requirements because it approved Heery’s design and inspected the work. But the board reasoned that when, as here, the contract places the burden of compliance on the contractor, the presence of a government inspector does not shift the responsibility for the sufficiency of the work on to the government. Heery did not inform the government that the doors and walls did not comply with the codes, so the government was not aware of the non-compliance. The government’s approval of a design did not relieve Heery of its obligations to comply with governing standards.

Lastly, Heery argued that the government breached its duty of good faith and fair dealing by failing to identify defects in the storage room earlier. The board, however, reasoned that the duty of good faith and fair dealing does not create a duty to identify defects. Rather, in this case, the obligation to identify defects was on Heery, as the designer.

Heery is represented by Heather F. Shore of Brown & Ruprecht PC and Wade Purcell. The government is represented by Michael P. Goodman and Laura J. Arnett of the Army Corps of Engineers.