Motion for reconsideration of a CBCA decision that mostly denied a contractor’s claim for equitable adjustment is denied, where the contractor waived its seemingly new prior material breach defense by not developing the defense in the prior hearing on the equitable adjustment claim. Additionally, the request for reconsideration is denied where even if timely raised, the prior material breach defense would not have changed the outcome of the prior hearing.
Yates-Desbuild Joint Venture sought an equitable adjustment from the State Department for $23 million in delay costs arising from a contract to build a consulate compound in Mumbai, India. The State Department denied the claim, and Yates appealed to the CBCA, claiming that the agency had caused the delay by failing to disclose a tax dispute between the United States Government and Government of India.
After a hearing, the CBCA found that out of 1299 days of delay, Yates was solely responsible for 744 days of delay and concurrently responsible for another 391. The CBCA awarded the State Department $6,674,624 in liquidated damages. Thereafter, Yates moved for reconsideration, contending that State Department’s failure to disclose the tax dispute was a prior material breach that excused Yates performance on the contract and therefore obviated the liquidated damages awarded to the agency.
CBCA found that Yates had waived the prior material breach argument. The board noted that new issues raised after trial are likely to prejudice other litigants. Thus, as a general matter, a tribunal should not consider new post-trial issues. The board stated that it was unaware in the previous hearing that Yates was challenging the State Department’s right to collect any liquidated damages. To the contrary, Yates had acknowledged at the previous hearing that the State Department was entitled to at least some liquidated damages. The board was particularly concerned that Yates had made the board sit through a hearing without disclosing a defense that, by Yates’s telling, would have eliminated the necessity of much of the hearing. This wasted the parties’ and the board’s time.
Yates argued that it did not learn of the failure to disclose the tax dispute until after contract performance and thus it could not have waived the prior material breach defense because it was never able to make a knowing election to continue contract performance after learning of the breach. The board dismissed this, reasoning that the posture of Yates’s defense in the previous hearing precluded this argument. Yates’s claim in the previous hearing was a superior knowledge claim—i.e. that the agency had pre-award knowledge of circumstances that impacted performance, which entitles the contractor to an equitable adjustment. When exactly the contractor learned of the agency’s superior knowledge is irrelevant to a superior knowledge claim. As a result, the State Department had no reason to develop the record on when Yates learned of the failure to disclose and whether the failure was a material breach. The board conclude that allowing Yates to assert this now would prejudice the agency.
CBCA also concluded that even if Yates had timely raised the prior material breach defense, it was still meritless. The board noted that generally, when a contracting party is sued for breach it may defend on the ground that the other’s party’s prior breach excused performance. But, the board continued, not every prior breach excuses performance. Indeed, performance is only excused when the “ill effects” of the breach are so material to the interests of the other party that a mere judicial remedy is insufficient to satisfy the requirements of justice.
Here, the harm to Yates of the State Department’s non-disclosure of the tax dispute was that the Government of India would delay Yates’s construction permits. While the tax dispute did have some impact on the permitting process, the vast majority of delay was caused by Yates’s ineptitude. What’s more, at some point during performance, the tax dispute was resolved. The delays that unquestionably occurred after that point could not have been caused by the failure to disclose the tax dispute. It was impossible for the board to say that the “ill effects” caused by the non-disclosure outweighed the “ill effects” caused by Yates’s own delays. The board therefore denied Yates’s motion for reconsideration.
Yates-Desbuild is represented by Douglas L. Patin and Thomas Lynch of Bradley Arant Boult Cummings LLP. The government is represented by Thomas D. Dinackus of the U.S. Department of State.
