The Court of Federal Claims directed judgment for the Government in a case where nearly thirty percent of the anticipated drilling elevations were incorrect, yet the geotechnical report was clear that the contractor should not rely on those elevations as final.

In Walsh Construction Co, v. United States, --- Fed. Cl. ---, No. 16-845 C, 2018 WL 4770781, at *1 (Fed. Cl. Oct. 3, 2018), Walsh Construction won a contract with the Army Corps of Engineers to build a defense logistics agency facility in New Cumberland, Pennsylvania. The geotechnical report called for the foundation to be supported by 272 drilled piers extending via shafts dug deep into the limestone subsurface underneath the project site.  The report included preliminary drilling depths for the shafts.

This aspect of the project was priced based upon the number of linear feet drilled; it did not include a premium for instances where the Government miscalculated the appropriate depth of a shaft. When Walsh’s subcontractor set about drilling the shafts for the foundation, its practice was to excavate to the preliminary depth for each shaft and then move on to the next drilling site without waiting for the Government to inspect the depth. While efficient in theory, this approach turned out to be tremendously costly: the Government’s estimated elevations were not deep enough as to nearly thirty percent of the 272 shafts, requiring the subcontractor to remobilize its drilling equipment 471 times. On this basis, Walsh alleged the Government had breached the duty of good faith by estimating elevations it knew were insufficient and then using the inspection process to expand the scope of work.

The Court rejected Walsh’s claim. It defined the duty of good faith and fair dealing as “the duty not to interfere with the other party’s performance and not to act so as to destroy the reasonable expectations of the other party regarding the fruits of the contract.” Because the contract documents were clear that the elevations set forth in the geotechnical report were subject to revision, Walsh could not establish that the Government had destroyed its “reasonable expectations.” In addition, the Government’s expert testified that there were sound scientific reasons for underestimating the depth of the shafts given the type of geology underlying the project site.

While there have been recent positive developments for contractors pursuing a claim that the Government has breached its duty of good faith, the Walsh decision is a good reminder that prevailing on such claims is no easy task. More importantly, it shows that establishing a breach of the duty does not focus exclusively on the Government’s conduct—the conduct of the contractor, too, is relevant to the inquiry.

If you have any questions about this article or the Government’s duty of good faith and fair dealing, please don’t hesitate to contact us.