Takeaways From Marine Industrial Construction LLC v. The United States
The Facts
The United States Army Corps of Engineers (USACE) issued a solicitation for dredging services of a waterway in Washington state. In that solicitation, USACE urged the bidders to inspect "the character, quality, and quantity of surface and subsurface materials or obstacles to be encountered insofar as this information is reasonably ascertainable from an inspection of the site."
That solicitation was "markedly different" from the solicitation from previous years. The government "streamlined" the solicitation by removing certain disclaimers and requirements to bid on the contract, including removal of warnings of "sunken boats, fishnets, steel trolling wire, and machinery – all likely to cause frequent downtime" as well as precipitation information for the area and warnings about "fast currents carrying large logs and trees likely to arise with little warning and cause damage to equipment." Additionally, the government added a boat basin to the scope of the solicitation—a portion of the waterway that had not been dredged in full since 1982.
Plaintiff was awarded the contract after providing the lowest bid—31 percent less than the independent government estimate. Prior to that award, USACE requested that plaintiff review and verify its bid, which plaintiff did and decided not to amend.
The notice to proceed was issued on September 24, 2014 (with a start date of October 11, 2014). However, plaintiff did not begin work on the project until November 18, 2014. Following this delayed start, plaintiff immediately experienced further setbacks to its dredging due to storms, equipment failures, floating logs, discovery of clay, boat parts, nets, and cable. Plaintiff also took "extended breaks from dredging the waterway throughout the contract period."
On January 13, 2015, the government issued a cure notice. Plaintiff initially responded on January 21, 2015, with a list of actions it was taking to improve production. The next day, plaintiff sent another letter alleging differing site conditions.
Plaintiff continued to perform behind schedule. The government issued a show cause letter on January 29, 2015, and ultimately terminated the contract for default on February 27, 2015. This termination was 156 days into the project, six days past the deadline; plaintiff had dredged 13,011 cubic yards of the required 79,000 cubic yards.
In its 2015 resolicitation for the same project, the USACE made significant changes, mainly re-inserting the warnings that it removed from the 2014 solicitation, including precipitation for the area and the resultant fast currents carrying "large logs and trees likely to arise with little warning and cause damage to equipment" and "debris in the boat basin, such as sunken vessels, and … portions of the marina boat basin have not been dredged since 1982." The USACE also made prior dredging records and bathymetric soundings available for review and added the requirement that the discharge pipe size be a minimum of 12 inches.
Plaintiff sued the government for breach of contract, arguing the government wrongfully terminated the contract because plaintiff's delay was excusable (117.5 days) and improperly demanded payment, breach of warranty, the differing site conditions encountered, and USACE's failure to disclose its superior knowledge, and requested the court "convert the government's termination for default to a termination for convenience" and "award plaintiff fees pursuant to the Equal Access to Justice Act."
The Court's Decision
The court, ruled that:
- 1. There were no disputes of material fact that plaintiff was in default at the time the contract was terminated;
- 2. Plaintiff failed to support its excusable delay claims for severe weather, noting that "[m]ere notice or knowledge that the contractor encountered a 'condition' falls short of the contractual requirement that the contractor notify the government that it considered the condition to constitute a 'differing site condition'";
- 3. There was no dispute of material fact that plaintiff complied with the contract's notice provision for excusable delay arising from all debris in the boat basin;
- 4. There was no dispute of material fact that plaintiff complied with the contract's notice provision for excusable delay arising from the differing site conditions;
- 5. By failing to raise the notice provisions as a defense to plaintiff's claims, the USACE waived the notice requirements for at least the following: (1) excusable delay related to unusually severe weather, debris, floating logs, clay, and the time elapsed between contract award and notice to proceed issuance; and (2) differing site conditions due to debris;
- 6. Plaintiff failed to support its excusable delay claim due to unusually severe weather as it offered no comparison of the weather encountered to the weather conditions of prior years;
- 7. Both claims for summary judgment on differing site conditions were denied due to disputes of material fact;
- 8. There was no dispute of material fact that the government withheld superior knowledge of a minimum sufficient pipe size as it had included the pipe sizing in four of the five previous solicitations; and
- 9. There was no dispute of material fact the government withheld superior knowledge of man-made debris and sunken vessels as it clearly included such information in previous solicitations and the subsequent 2015 solicitation.
The court determined that the following four issues would be decided at trial to determine whether plaintiff is entitled to have its termination for default converted to a termination for convenience:
- 1. The remedy for the government's failure to disclose superior knowledge of a minimum sufficient pipe size;
- 2. The remedy for the government's failure to disclose superior knowledge of debris;
- 3. Whether the debris plaintiff encountered constitutes a differing site condition, and if so, the remedy; and
- 4. Whether plaintiff would have completed the contract but for any excusable delay.
Takeaways
This will likely have multiple positive ramifications for contractors going forward. Mainly, (1) the court stated that "the government cannot turn contractors on site visits into detectives on crime scenes for the purpose of uncovering government-withheld vital information" and (2) the determination of whether a termination for default should be converted into a termination for convenience is multifaceted and can be intricately woven into a plaintiff's various other delay claims when such a termination is predicated on delay.