Appeal of a claim seeking reimbursement of extra costs on a contract for prefabricated relocatable buildings is denied in part, where the government did not modify the SOW to allow the contractor to alter the manufacturing requirements and where the appellant was aware that no such modifications had been approved. The appeal is granted in part, where the government significantly delayed its decision denying the appellant’s request for a modification, causing it to incur additional labor costs.
Relyant LLC appealed the contracting officer’s denial of its claim for equitable adjustment for $1,005,051 for extra costs incurred on a contract to deliver prefabricated relocatable buildings for use at two different sites in Afghanistan.
The SOW accompanying the solicitation for the contract required the installation of gypsum interior drywall to the interior of the shipping containers that would cover fiberglass insulation that was a minimum of three inches thick. Relyant proposed a different configuration: the use of a sandwich panel, including Styrofoam as the insulator, instead of separate insulation and drywall.
The resulting contract did not adopt the change to the SOW proposed by Relyant relating to the substitution of the sandwich panel for the drywall and insulation interior walls. However, Relyant's management initially assumed that the proposal had been adopted.
The first delivery order issued under the contract required the delivery and installation of six two-story RLBs to Forward Operating Base Sharana, Afghanistan, and directed Relyant to submit one of these nine RLBs for first article testing within 180 days. The portion of the SOW that required the drywall/insulation combination remained unmodified by this change order. The modification also included a release of claims. Additional delivery orders called for the delivery and installation of multiple RLBs to Bagram.
Because of scheduling pressure for the first delivery order to Bagram, Relyant began shipping RLBs to Bagram before the first article testing was conducted at Sharana. To expedite matters, the parties agreed that the first article test at Sharana would be sufficient to meet the requirements, and therefore Relyant was not required to submit RLBs for testing for each delivery order.
During the testing at Sharana, government personnel made no objection to the use of the sandwich panel in lieu of the drywall/insulation combination, and the RLB passed the first article testing. However, the more senior field engineering team at Bagram, which had drafted the original SOW and was the primary source of expertise for the contracting officer, disagreed. The CO found the RLBs were not in compliance with the SOW and did not allow them at Bagram. While Relyant asked the CO to amend the SOW to accommodate its changes, the request was never granted.
To get around the problem, Relyant forwarded the RLB components delivered to Bagram to Sharana, where the RLBs had passed the first article testing. The record does not reflect the CO’s response to Reylant’s letter notifying her of this decision, but apparently, she permitted noncompliant RLBs to be accepted at Sharana. The parties executed additional modifications, none of which addressed the changes sought by Relyant. Subsequently, Relyant revamped its means of manufacturing the RLBs to provide RLB components that satisfied the CO (and contract) at the second site.
In 2015, Relyant submitted a request for equitable adjustment for $1,005,051 for extra costs incurred on delivery order number 2 for the RLBs for Bagram. In its claim, Relyant argued the government wrongly rejected the D02 material submittals, which it alleged had been approved for DO1. This section of the claim noted that the government failed to disclose, for approximately 237 days, its superior knowledge that it might not approve the submittals for DO 2 that it had for DO 1. In support, Relyant explained that government personnel had informed Relyant that the RLBs looked good and would be approved.
Relyant also argued that the rejection of the DO 2 submittals constituted a material change to the contract since they had previously been accepted for DO 1. Relyant then asserted that the government was responsible for delay damages coming from its failure to act in a reasonable time to approve the DO 2 submittals and for failing to have the lay down areas at Bagram adequately prepared for the cans sent there. Relyant explained that the government's failure to timely act upon the submittals caused it to suspend its work at Bagram until they were rejected. Other damages argued to be due were $381,875 in burdened costs of shipping the DO 2 cans to Sharana from Bagram; $172,004 in burdened labor costs of individuals at Bagram; and $417,064.22 in damages from unabsorbed overhead. The CO denied the claim and this appeal followed.
As preliminary matters, ASBCA granted in part and denied in part Relyant’s motion to amend its complaint, and granted the government’s motion to amend its answer. The board also denied Relyant's motion to impose an adverse inference upon the government for its inability to find and produce certain documents in discovery.
Specifically, the board permitted Relyant to amend its complaint to flesh out its supporting narrative and to add new claims for relief. The government opposed on the grounds that Relyant had not presented these claims to the CO, but the board disagreed, finding that some of the new claims were encompassed in the original complaint and were based on the same operative facts. However, the board denied the motion to amend to add a cause of action for promissory estoppel, because that theory requires a contract implied-in-law, over which it does not possess jurisdiction. The board granted the government’s motion to amend to reply to these new claims.
In its decision on the merits, the board held the government was within its rights to require Relyant to comply with the SOW at Bagram. As a straightforward matter of contract interpretation, the SOW required the use of the drywall/insulation combination, and the government was entitled to hold Relyant to it, until the contract was modified, regardless of whether it was a good or bad idea. The board found the contract had never been modified, either by direct action by the CO, or through the government’s approval of the first article testing. The parties presented no evidence of a contract modification amending the relevant SOW language, and the acceptance by government officials at Sharana did not overrule the contract specifications nor serve to amend the SOW, authority for which rested solely with the CO.
While Relyant argued the government effectively approved an amended SOW by approving the first article test of the RLB at Sharana, the board disagreed. The contract clearly stated that notice of approval of the test articles did not relieve the contractor of its obligation to comply with the SOW requirements. Further, the CO told Relyant that its changes to the SOW were rejected before it received the FAT results, and Relyant never acted as if the FAT results changed its understanding of what was permitted at Bagram.
The board also found the government did not possess undisclosed superior knowledge. While Relyant argued that the government failed to state that it would not permit the use of the sandwich panel, thus breaching the contract by failing to disclose superior knowledge, ASBCA found this argument contrary to the facts.
First, the government did not mislead Relyant as to what the SOW required when it awarded it the contract. While Relyant assumed that its alternate sandwich panel method was approved, the contract stated otherwise, and Relyant conceded that its proposal allowed for the possibility that the government would choose to stick with the specifications contained within the SOW. The government had no reason, at the time of contract award, to believe that Relyant misapprehended the plain language of the contract. Further, during performance, the government's multiple requests for Relyant to provide submittals with its alternate sandwich panel construction would have plainly disabused Relyant of any mistaken belief that the government had approved its sandwich panel construction.
However, while the government was not obligated to accept the noncompliant RLBs and that it had not misled Relyant, the board found that the three-month delay in deciding whether to accept the noncompliant RLBs was a breach of the duty of good faith and fair dealing. Though the contract did not specify how long the government will spend reviewing requests to modify the SOW, if the government's delays in addressing Relyant's requests unreasonably interfered with contract performance, the board concluded it could find breach.
Relyant resubmitted its request to modify the SOW on April 22, 2009, but the government did not render a decision until early August. Because the CO’s technical expert was able to make her recommendation in less than a week in August 2009, ASBCA found that a reasonable amount of time for approval or rejection of the request would have been May 1, 2009, and that the government's failure to act by then constituted a breach of the duty of good faith and fair dealing.
The board explained that 1) the requested change to the SOW was one with which the government was familiar; 2) it was recognized by the government as being reasonable and potentially in its best interest; 3) the government was aware that Relyant was awaiting its answer for several months in the spring and summer of 2009, while Relyant continually prompted it to act; 4) the government was aware that its delay in decision-making was potentially to the detriment of Relyant in terms of its incurring additional costs during the waiting period; 5) there were no circumstances that justified an extended wait on the part of the government before deciding whether to permit the change in the SOW; and 6) the government's decision-making appears to have been able to have been accomplished within a matter of days once it turned its attention to the matter.
Turning to damages, the board held that the government was not responsible for Relyant' s costs for forwarding RLBs to Sharana after their rejection at Bagram in August. The board held that any extra costs are limited to the costs incurred at Bagram, where two Relyant employees awaited the go-ahead to begin assembly operations.
According to the evidence presented by Relyant, that amount was $151,816 (the $172,004 in burdened labor costs for April through August 2009 minus the $20,188 for the month of April 2009). The delay in approval of the submittal appears to have had no impact upon construction at Sharana because the FAT there was not approved until a time in August 2009 after denial of the SOW submittals. Since Relyant has not alleged that the FAT was unreasonably delayed and has provided no evidence that it could have proceeded elsewhere prior to the FAT, ASBCA concluded that it is not entitled to other delay damages.
Finally, the board rejected the government’s affirmative defense that Relyant had waived its claims. The government argued that Relyant' s continued performance, despite the government's breach, constituted a waiver of Relyant's rights because Relyant's silence was to the disadvantage of the government; that bilateral modifications to contract due dates acted to eliminate the government's liability for damages under the theory that once the bilateral modifications are in place, the parties are to "let bygones be bygones"; and that Relyant' s costs incurred shipping rejected RLBs from Bagram to Sharana were covered by the release language in the modification.
The board held that the government's first theory, that continued performance of a contract in the face of a breach constitutes waiver, is a gross misreading of the relevant law. The government posited no plausibly similar circumstances and was well aware that Relyant considered itself wronged. No injustice was done to the government by Relyant's timely bringing of its routine claims in this matter pursuant to the contract's disputes clause.
Likewise, the board found the bilateral modification theory did not, in fact, protect the government from the liability found above, especially given the glaring lack of appropriate mutual releases. Letting "bygones be bygones," in this context, does not wipe the slate clean as far as the government's liability for the imposition of all additional costs goes; rather, it only deals with costs associated with the new schedule. The costs of the Relyant employees wasting their time in Bagram due to government inaction on the request to amend the SOW are not such precluded costs. Had the government wished to insulate itself from such potential costs, it could have negotiated a release clause as it did in the change order relating to delivery costs.
Relyant LLC is represented by James H. Price of Lacy, Price & Wagner, PC. The government is represented by Raymond M. Saunders, Army Chief Trial Attorney, and Major Jason W. Allen, JA, Trial Attorney.