Was the Government Responsible for the Contractor’s Problems with an Obstreperous State Agency?

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While working on a federal construction project, the contractor encountered problems with a state environmental agency. The state agency directed the contractor to redesign its plans and make costly changes to the project. The contractor filed a claim, alleging the redesign was a constructive change and that the government had known, but not disclosed, that the contractor would have problems with the state agency. The ASBCA rejected the contractor’s arguments, finding that the contract clearly placed responsibility for state permitting and approvals on the contractor. While the contractor may have experienced problems in obtaining state approval, that was not the government’s fault.

Appeals of ACC Construction, Inc., ASBCA Nos. 62265, 62397

Background

The Army Corps of Engineers awarded a contract to ACC Construction for the design and construction of an equipment concentration site in Virginia. The contract provided that ACC was responsible for obtaining all necessary permits for the project from state and local governments. This included complying with Virginia stormwater requirements. 

The Corps had recognized that obtaining stormwater approval from the Virginia Department of Environmental Quality (DEQ) could be difficult. DEQ had recently revised its requirements and many government projects were having compliance difficulties. As a result, the Corps had factored 90 extra days into the period of performance to account for problems with DEQ. ACC had represented that its subcontractor had extensive experience in stormwater permitting in Virginia, so it didn’ think the permitting would be an issue.

But alas, ACC had problems obtaining stormwater permitting. DEQ determined that the equipment site was an industrial hotspot, which required a redesign of ACC’s stormwater system. DEQ also required ACC to install additional filters for pollutants.

ACC submitted a claim to the Corp,s alleging the Corps had unreasonably insisted that ACC comply with DEQ’s undisclosed requirements. ACC also contended it was entitled to delay costs caused by the DEQ issues. The Corps denied the claim. ACC appealed to the ASBCA

Analysis

Constructive Change

ACC alleged the contract had established that the worksite was not an industrial hotspot under DEQ’s standard, and that the government constructively changed the contract by requiring ACC to redesign to account for the hotspot designation.

The board found several problems with this argument. First, the contract made no commitment regarding hotspots. Indeed, nothing in the contract stated that ACC could expect that the site would not be a hotspot. Additionally,  the contract clearly provided that ACC was solely responsible for ascertaining and complying with all state requirements. What’s more, contrary to ACC’s contention, the government did not dictate a redesign for the industrial hotspot. In fact, instead of trying to saddle ACC with additional work, the government had tried to change DEQ’s mind with regard to the hotspot designation. In short, ACC, not the government, was responsible for DEQ’s regulatory demands.

Defective Specifications

ACC contended the solicitation did not identify the project as an industrial hotspot so the contract contained defective specifications. The board didn’t agree. The contract did not purport to assure ACC that it could rely on DEQ interpreting its own regulations in a particular way. The hotport issue arose because DEQ decided the area was a hotspot; it had nothing to do with specifications in the contract.

Breach of Duty of Good Faith and Fair Dealing

ACC asserted that the government breached its duty of good faith and fair dealing by not intervening to make DEQ change its mind about the hotspot designation. In fact, however, the government did try — without success — to convince DEQ that the area was not a hotspot.

Superior Knowledge

Lastly, ACC argued that the government knew that DEQ may be difficult to satisfy but that withheld this information from the company. The board wasn’t convinced. While the government had recognized that DEQ was hard to satisfy, it had decided to account for this by adding the extra period of performance to the contract. ACC had told the government that its subcontractor knew how to handle DEQ. In light of this, the government was not obligated to inform ACC about what to expect from DEQ. 

ACC is represented by Lochlin B. Samples, Mackenzie P. Bell, and Jacob W. Scott of Smith, Currie, & Hancock LP. The government is represented by Michael P. Goodman, R. Lauren Homer, Brett R. Howard of the Army Corps of Engineers.

–Case summary by Craig LaChance, Senior Editor

ASBCA - ACC Construction