Federal Circuit Overturns ASBCA, Holds that Equitable Adjustment is Unwarranted If Claimant’s Interpretation of the Contract is Unreasonable; United States Army Corps of Engineers v. John C. Grimberg Co. Inc., Fed. Cir. 2019-1608

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ASBCA decision granting contractor an equitable adjustment for a differing site condition is reversed. To receive an equitable adjustment, a contractor must prove that it reasonably relied on its interpretation of the contract. In this case, however, the ASBCA had explicitly found that the contractor’s interpretation of the contract was unreasonable. Given its unreasonable interpretation, the contractor was prohibited from receiving an equitable adjustment.

The Army Corps of Engineers issued a solicitation for the construction of laboratory. The solicitation included a geotechnical report, which stated that the lab had to be supported by a foundation system of piers drilled into rock. The geological report disclosed 46 test borings to indicate subsurface conditions. Only two of those borings, however, were from the actual area were the lab would stand.

The Corps awarded the contract to John C. Grimberg Co. In its proposal, Grimberg had estimated that it would need to drill through 240 feet of rock—about five feet for each of 48 piers. But once Grimberg began work, it found that the rock below was limestone in a Karst formation, meaning there were large cracks and voids in the rock. Grimberg ended up having to drill through more than 923 of rock, 683 more feet than estimated.

Grimberg submitted a claim to the Corps seeking an equitable adjustment for a differing site condition. The Corps denied the claim. Grimberg appealed to the ASBCA.

After conducting a hearing, the ASBCA found that Grimberg’s reliance on just two borings was unreasonable. Nevertheless, the board also found that Grimberg’s reliance on two borings was more reasonable than the government’s position, which is that Grimberg should have relied on borings that were more than 500 feet from the lab’s footprint.

Having found that neither Grimberg nor the Crops had provided a reasonable estimate of rock, the board, based on the evidence, concluded that the contract reasonably indicated about 360 feet of drilling. The board found that Grimberg had encountered more rock than reasonably indicated in the solicitation and thus was entitled to an equitable adjustment for a differing site condition. The Corps appealed the board’s decision to the Federal Circuit.

The court reversed the board. The Federal Circuit has long held that to receive an equitable adjustment, a contractor must prove that it reasonably relied on its interpretation of the contract. This incentivizes the contractor to carefully and reasonably interpret contract documents.

In this case, the board explicitly found that Grimberg’s interpretation—which was based on only two relevant borings—was unreasonable. That both the Corps and Grimberg failed to establish reasonable interpretations did not somehow shift the burden or providing reasonable interpretation from Grimberg to the government. Regardless of the Crops’ interpretation, Grimberg bore the risk of bidding on a contract without reasonably interpreting it. The company was not entitled to an equitable adjustment.

Grimberg is represented by Herman Martin Braude of Braude Law Group P.C. and Edward Jerome Parrott of Watt, Tieder, Hoffar & Fitzgerald. The government is represented by Albert S. Iarossi, Joseph H. Hunt, Allison Kidd-Miller, and Robert Edward Kirschman, Jr. of the Department of Justice as well as Scott Seufert of the Army Corps of Engineers.

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