December 2, 1999
Appeal of
HASELRIG CONSTRUCTION COMPANY, INC.
LEASE AGREEMENT
PSBCA No. 4148
APPEARANCE FOR APPELLANT:
Toby N. Byrd, Esq.
APPEARANCE FOR RESPONDENT:
Karren Dickson Vance, Esq.
Appellant, Haselrig Construction Co., Inc. has appealed the decision of the contracting officer to terminate for default a new construction lease (NCL) agreement entered into between Appellant and Respondent, the United States Postal Service. A hearing was held in Arlington, Virginia.
1. On April 19, 1996, Appellant and Respondent entered into a new construction lease agreement in which Appellant agreed to purchase a site controlled by Respondent[1] in La Plata, Maryland, to construct a post office on that site and then lease it to Respondent for an annual rent of $199,293 (Stipulation Nos. (Stip.) 1, 2; Appeal File Tabs (AF) 3, 4).
2. Bernard J. Young and Associates prepared the drawings and specifications for the project under a separate contract with Respondent and this design package was included in the solicitation to all bidders (Stip. 8; AF 8b).
3. In accordance with the NCL, Appellant agreed to construct the post office in accordance with the drawings and specifications furnished by Respondent. In addition, Appellant agreed to investigate the site selected by Respondent and be responsible for unknown subsurface and latent physical conditions of an unusual nature differing materially from those ordinarily encountered. (Stip. 3, 4; AF 3, 4, 8a). Any design change required to correct such subsurface conditions required the approval of the contracting officer or contracting officer’s representative (COR) (Transcript page (Tr.) Vol. I 37, 168).
4. Addendum 3 to the NCL required Appellant to hire a geotechnical engineer, licensed by the State of Maryland, to perform a subsurface geotechnical investigation at the site, including soil borings, and to provide a report of the subsurface conditions, including recommendations for backfill material, compaction requirements, and building foundation placement (Stip. 5).
5. The NCL also required Appellant to employ the services of an architect-engineer, who was licensed to practice in the State of Maryland, to complete, as necessary, the specifications and drawings for the construction of the post office in accordance with the requirements of the NCL and to adapt the design of the building to meet applicable local, state and national code requirements (Stip. 6, 7; AF 4, 8a).
6. Section 6 of the Construction Rider to the NCL, TERMINATION FOR DEFAULT – DAMAGES FOR DELAY – TIME EXTENSIONS, provided, in part:
“a. If the contractor refuses or fails to acquire the site, if applicable, or to prosecute the work with such diligence as will insure its completion within the time specified in this contract, or any extension thereof, or fails to complete said work within such time, the Postal Service may, by written notice to the contractor, terminate his right to proceed with the work . . . .
b. The contractor’s right to proceed shall not be so terminated nor the contractor charged with resulting damage if:
(1) The delay in completion of the work arises from unforeseeable causes beyond the control and without the fault or negligence of the contractor, including but not restricted to acts of God, acts of the public enemy, acts of Government in either its sovereign or contractual capacity, acts of another contractor in the performance of a contract with the Postal Service, fires, floods, epidemics, quarantine restrictions, strikes, freight embargoes, unusually severe weather, or delays of subcontractors or suppliers arising from unforeseeable causes beyond the control and without the fault or negligence of both the contractor and such subcontractors or suppliers.” (AF 8a).
7. The construction rider to the NCL required site work to be completed within 60 days after receipt by the contractor of the notice to proceed, and completion of building construction 120 days thereafter, for a total construction time of 180 days (Stip. 11).
8. Appellant’s geotechnical engineer conducted an investigation and submitted a report on November 25, 1996, that indicated the soils at the site were marginal and recommended that the building be constructed on conventional, shallow, embedded, spread footing foundations that were, in turn, supported on a mat of controlled, compacted, structural fill (Stip. 16; Supplemental Appeal File tab (SAF) 18).
9. Because of Appellant’s difficulty obtaining financing and bonding, notice to proceed was never issued, and Appellant’s contract with Respondent was terminated for default for failure to make progress on February 13, 1997 (AF 21, 22, 24, 31).
10. On April 2, 1997, Respondent and Appellant agreed to reinstate the contract under the identical terms and conditions of the defaulted contract. The schedule under the reinstated contract thus called for site work to be completed within 60 days after receipt of notice to proceed and completion of the building 120 days thereafter. (Stip. 11, 17; AF 20).
11. By letter dated April 15, 1997, Respondent issued the notice to proceed under the reinstated contract (Stip. 18). In the same letter, Respondent informed Appellant that its project manager for this project was Byron Ruth and that Mr. Ruth would also act as the contracting officer’s representative (COR). As COR, Mr. Ruth had the authority to issue change orders on the project, provided that the change order did not involve a change in unit price, quantity, quality or time. The COR was responsible for bringing to the attention of the contracting officer those problems on the project that required the authority of the contracting officer to resolve. (Tr. Vol. I 17, 111; AF 19).
12. A pre-construction meeting attended by representatives of both Appellant and Respondent was held on April 15, 1997. At the meeting, the contracting officer informed Appellant that the Postal Service was in the process of redesigning the building to meet new Postal Service requirements and would issue the redesign to Appellant on May 21, 1997 (Tr. Vol. I 28-32; SAF 17 ).
13. During the pre-construction meeting, the contracting officer proposed a new construction schedule. The proposed schedule was based on Appellant receiving the redesigned construction documents on May 21, 1997, and allowed Appellant until August 13, 1997 to complete site work and until January 28, 1998 to complete construction of the building. Respondent requested that Appellant prepare and submit a bar chart type of construction schedule reflecting these new completion dates (Tr. Vol. I 28-32; Stip. 19-21; SAF 17).
14. Appellant and Respondent met again on April 23, 1997, to discuss the November 25, 1996 geotechnical report’s findings and recommendations (see Finding of Fact No. (FOF) 8). The contracting officer informed Appellant at this meeting that the Postal Service would be responsible for any increased costs incurred by Appellant as a result of the Postal Service redesign of the building but that Appellant was responsible for any costs resulting from unanticipated subsurface conditions. (Stip. 22; SAF 15).
15. Respondent completed the redesign of the project on May 27, 1997, and sent one copy of the redesign to Appellant on that date (Stip. 23; SAF 7, 14).
16. The NCL was never formally modified to reflect the requirement to construct the building in accordance with this redesign (Tr. Vol. I 194).
17. The redesign of the building affected 90% of the building trades and caused Appellant to seek new bids from its subcontractors and suppliers (Tr. Vol. II 94, 95).
18. The redesign also required that Appellant apply for new building permits from the city of La Plata, Maryland[2]. Appellant applied to the city of La Plata for new building permits on June 7, 1997, and received preliminary approval three days later. (Tr. Vol. I 75, 76, Vol. II 98, 99-102; Appellant’s Exhibit No. (AE) 36).
19. Appellant developed a construction schedule based on the redesigned project and, on June 10, 1997, transmitted the schedule to Respondent. The schedule was prepared in “bar chart” format and indicated that site work would commence on June 1, 1997, and continue through November 1997, with completion of the entire project on February 28, 1998. Other than requesting a more legible copy of the schedule, Respondent never commented on the adequacy of the schedule itself. (Tr. Vol. I 227, Vol. II 109-111; AE 26).
20. The redesign of the project prepared by Respondent included the foundation recommendations contained in the November 1996 geotechnical report. However, Respondent’s architectural and engineering consultant (A&E) remained concerned about the building’s foundation since the northern end of the redesigned building was sited where very loose and soft conditions were previously identified. (Tr. Vol. II 117, 118; SAF 10).
21. On July 10, 1997, the parties, including Respondent’s A&E and COR, and Appellant’s geotechnical consultant, met to discuss the foundation issues. Possible revisions to the foundation design were discussed and the need for additional borings was addressed. It was agreed at this meeting that Appellant’s geotechnical consultant would provide new foundation design recommendations. The COR instructed Appellant not to excavate the foundation until the geotechnical consultant provided the new design recommendations. Subsequent to the meeting, two additional borings were drilled. (AF 15; AE 22; SAF 7, 11).
22. Appellant orally communicated with Respondent’s COR during this time period concerning possible changes to the foundation design, and in this regard, the COR scheduled a meeting for July 24, 1997, to further discuss the foundation redesign. However, the COR cancelled that meeting and rescheduled it for the first week in August. Nevertheless, and without explanation, the COR failed to show up for the rescheduled meeting. (Tr. Vol. II 126, 127).
23. Appellant’s geotechnical consultant prepared new foundation design recommendations on July 30, 1997 and transmitted them to the COR, Respondent’s A&E, as well as to Appellant. Based on subsequent discussions with Respondent’s A&E, these design recommendations were further modified and retransmitted to the same parties on August 12, 1997 (SAF 9, 10).
24. By certified letter dated August 14, 1997 (received by Appellant on August 18, 1997), the contracting officer advised Appellant that she was concerned about the lack of progress on the job and requested that Appellant submit justifiable reasons for the failure to make progress or face the possibility of the contract being terminated for default (Stip. 26; AF 17).
25. In a letter to the COR, dated August 21, 1997, Appellant proposed certain foundation design changes which included possibly having to move the location of the loading dock, and requested the COR’s approval to proceed with the changes. Appellant further requested that the COR act as soon as possible to avoid further delay to the project (Tr. Vol. II 63, 64; AE 29). Appellant also sent a copy of this letter to the contracting officer (Tr. Vol. I 118).
26. Neither the contracting officer nor the COR ever responded to Appellant’s letter of August 21, 1997, and the COR never returned calls from Appellant concerning whether he had approved the proposed foundation design changes (Tr. Vol. II 131).
27. If the contracting officer or COR had responded with an approval of Appellant’s design change request at this time, Appellant could have met the schedule it had proposed on June 10, 1997 (Tr. Vol. II 132, 133).
28. Appellant responded to the contracting officer’s letter of August 14, 1997, in a letter dated August 22, 1997, and explained that the redesign of the project created delays since Appellant was required to obtain new building permits as well as obtain new bids from its subcontractors and suppliers (see Findings 17, 18). Appellant further explained that both Respondent’s A&E and the COR had agreed at the July 10, 1997 meeting to take additional soil borings and have Appellant’s geotechnical consultant provide new recommendations for the foundation design. Finally, Appellant reminded Respondent that the COR had directed Appellant during the July 10 meeting that no further site excavation should be accomplished until Appellant’s geotechnical consultant submitted the results of the borings and the recommended foundation redesign to Respondent’s A&E for their analysis (See Finding No. 21). (Stip. 27; AF 15; SAF 7).
29. Appellant followed up its letter of August 21, 1997, with a second letter to the COR on September 5, 1997, again asking for his swift action to review Appellant’s proposed foundation related design changes so that work on the project could proceed (SAF 6).
30. By final decision dated September 20, 1997, the contracting officer advised Appellant that she was holding Appellant in default of its contract[3] (AF 14). Appellant timely appealed the final decision (AF 10).
31. At the time of the final decision, Appellant had cleared the site and graded to sub-elevation for the building pad and parking lots. Footers were ready to be poured for the building’s south wall but further work on the site could not be accomplished without approval from the COR or contracting officer of the proposed foundation design changes for the north wall. (Tr. Vol. II 115-117, 135-143).
32. By accelerating its construction efforts, Appellant could have met the January 28, 1998 project completion date established by Respondent at the pre-construction meeting (see Finding 13) if Appellant’s proposed foundation design changes had been approved by the contracting officer or COR on September 20, 1997 (the date of termination) (Tr. Vol. II 146-150).
DECISION
Respondent argues that the decision to terminate the contract for default was justified by Appellant’s failure to make progress. In this regard, Respondent argues that, at the April 15, 1997 meeting of the parties, the contracting officer established August 13, 1997, as a milestone for completion of site work (Finding of Fact No. (FOF) 13), and that Appellant failed to meet this milestone. Respondent further argues that its redesign of the project after this meeting did not warrant a time extension beyond that already granted by the contracting officer. Finally, Respondent denies that it delayed in responding to Appellant’s request for approval of a proposed foundation design change.
Appellant argues that Respondent failed to show it was behind schedule or that it could not have completed the project on time. Appellant further argues that Respondent was on notice of subsurface latent conditions that justified a time extension to the contract’s schedule.
To support a decision to terminate a contract for default for failure to make progress, Respondent must demonstrate that there was no reasonable likelihood that the contractor could complete the project within the time remaining for performance. Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 762 (Fed. Cir. 1987). Respondent failed to meet this burden.
Appellant may have been behind schedule in constructing the La Plata Post Office. However, the evidence establishes that, as of the date of termination, Appellant could have accelerated its efforts and finished the project by January 28, 1998, the date allowed by the contracting officer for completion at the April 15, 1997 pre-construction meeting (FOF 31, 32).
Moreover, to the extent Appellant was experiencing difficulty in meeting the August 13, 1997 site work completion date, or the final completion date, Respondent’s failure to cooperate with Appellant in resolving the latent subsurface design problem that Respondent’s own A&E identified contributed to these delays.
At the direction of the COR, Appellant stopped excavation work on the foundation on July 10, 1997, pending approval by Respondent of the geotechnical consultant’s preparation of new design recommendations (FOF 21). The foundation redesign was initially transmitted to the COR on August 12, 1997 (FOF 23). Although Appellant repeatedly attempted to get a response from Respondent to these proposed foundation design changes, neither the contracting officer nor the COR discussed the changes with Appellant or gave approval to the recommendations (FOF 25-29). Although the contract placed the responsibility on Appellant for latent subsurface conditions, it also required that Appellant seek the approval of the contracting officer or contracting officer’s representative before changing the project’s design to address an unexpected subsurface condition (FOF 2). Lacking a timely response (or, indeed, any response) to proposed foundation design changes, it is understandable that Appellant had not completed all the site work by August 13, 1997 (FOF 31). Thus, to the extent this date represents an enforceable contract milestone, Appellant’s failure to meet the date was excusable.
In these circumstances, Respondent cannot rely on Appellant’s failure to make progress to support its decision to terminate the contract for default since, as late as September 20, 1997, Appellant could have met the project completion date by accelerating the construction schedule, if only Respondent had responded to Appellant’s request for design change approval (FOF 32).
Accordingly, Respondent’s decision to terminate the contract for default was a breach of contract and the appeal is sustained.
William K. Mahn
Administrative Judge
Board Member
I concur:
James A. Cohen
Administrative Judge
Chairman
I concur:
David I. Brochstein
Vice Chairman
[1] Respondent had previously obtained an assignable option to purchase the site (Stipulation No. 1).
[2] Appellant was instructed by the city of La Plata not to proceed with any work until the city reviewed the redesigned drawings and reissued the building permits (Tr. Vol. II 105).
[3] Although this final decision does not specifically state that Appellant’s contract is “terminated” for default, it is evident from subsequent correspondence between the parties that they treated it as such (AF 11, 12, 13).