Cases of the Month
Significant Cases and Decisions Affecting the Construction Industry
By: Joseph H. Bucci, Esquire
Saul Ewing LLP
1. While federal agencies have a range of different acquisition rules and regulations, one of the key rules of federal contracting that remains consistent across the board is that contracting proposals received after a bidding deadline are effectively out of the running for consideration, with only very rare exceptions. Following a protest to a solicitation issued by the Department of the Navy challenging the agency’s decision not to consider a vendor’s quotation that was declared untimely received by the Navy, the Comptroller General in a March 16, 2017 decision rejected the contractor’s protest. Matter of Peers Health, B-413557.3 (Comp.Gen.), 2017 CPD P 93, 2017 WL 1056074.
* What the Court Considered: Here the Comptroller General reviewed the solicitation which included detailed instructions for the preparation and submission of proposals, as well as the evaluation criteria and the basis for award. The solicitation included FAR Provision 52.212-1, which addressed late submissions.
* What the Court Said: The record reflected that the protestor submitted its proposal, electronically, one minute before the quotations were due. While the proposal was received on a government server one minute before the deadline, the proposal itself did not reach the location designated in the solicitation for the receipt of quotations until some three hours and fifty minutes later. As such, because the proposal was not received in the “location designated in the solicitation” in a timely manner, the agency properly rejected the bidder’s proposal and this bid protest is denied.
* What the Opinion Means: There will be strict construction of bidding requirements in terms of timeliness of receipt and the means, manner and location by which a proposal must be received in order to be considered timely. Electronically submitted proposals are particularly cause for concern because the issue of the time of receipt and the location required for receipt can present problems running afoul of FAR 52.212-1.
2. On a large excavation project awarded U.S. Army Corps of Engineers involving an Air Force base near Omaha, Nebraska, a series of construction-related claims for delay and impact arose where quantification of damages utilized the “measured mile” methodology. On a motion in limine filed to exclude the expert opinions of several consultants identified to testify on construction scheduling issues, the admissibility of this expert testimony came into question and was challenged. United States for Use of Murphy v. Travelers Casualty and Surety Company of America, 2017 WL 2838128 (U.S. Dist. Court, D.Nebraska; June 30, 2017).
* What the Court Considered: Federal Rule of Evidence 702 governs the admissibility of expert testimony and provides that an expert’s testimony should only be excluded where it is so fundamentally unsupported that it can offer no assistance to the jury. When faced with a challenge to expert testimony, trial judges are charged with the gatekeeping responsibility of ensuring that all expert evidence submitted is both relevant and reliable, a task for which trial courts are given wide latitude to make their determination.
* What the Court Said: At issue here was a motion to exclude the testimony of several experts regarding the measured mile quantification of lost-productivity costs submitted by one of the parties. Upon a challenge, the proponent of expert testimony bears the burden of proving admissibility by a preponderance of the evidence. Under Rule 702, there is an attempt to liberalize the rules governing the admission of expert testimony and the rule remained one of admissibility rather than exclusion. If there is doubt regarding whether an expert’s testimony will be useful, the doubt should be resolved in favor of admissibility. Vigorous cross examination, presentation of contrary evidence and careful instruction on the burden of proof are the traditional and appropriate means of attacking shaky but otherwise admissible evidence. The measured mile method of quantification, like virtually every method of measuring loss productivity, does require the opinion of an expert. After having considered the motion in limine, the court concluded that the challenged experts were qualified to testify with respect to the measured mile quantification of lost productivity damages, finding that their specialized knowledge would help the trier of fact to understand the evidence.
* What the Opinion Means: Motions in limine to exclude testimony of experts are subject to close review and examination by trial judges who have considerable discretion on determining whether or not the proffered expert’s testimony will be useful as contrasted with being prejudicial. Judges are inclined to allow the testimony of expert witnesses subject to cross examination and the presentment of opposing experts by the challenging party. Criticisms of a proffered expert’s testimony may go more to the weight given to that testimony than to the admissibility of the testimony.
3. On a motion to compel arbitration arising out of a Strategic Alliance Agreement (“SAA”) between parties who agreed to collaborate on construction projects involving large-scale industrial bulk storage reinforced concrete domes, the dispute resolution provision under their agreement was challenged following the commencement of suit before the U.S. District Court for the Western District of Virginia. Dome Technology, LLC v. Golden Sands General Contractors, Inc., 2017 WL 2822198 (W.D. Virginia June 28, 2017).
* What the Court Considered: Here the court reviewed the SAA between the parties, as well as the subsequently executed individual subcontracting agreements for the projects that were undertaken pursuant to the SAA. The primary question for the court to resolve was whether or not the subcontract agreement between the parties, executed subsequent to the SAA, included an arbitration provision applicable to the payment disputes.
* What the Court Said: The Federal Arbitration Act (“FAA”) governs the rights and responsibilities of the parties under an arbitration agreement. Courts universally have interpreted the FAA to reflect a liberal federal policy favoring arbitration agreements. Under the FAA, courts are required to stay litigation pending arbitration of any issue referable to arbitration under an agreement in writing providing for arbitration of disputes. In this controversy, the only issue for this court to determine was whether or not a valid arbitration provision covered the disputes at issue. To resolve this controversy, the court had to construe both the SAA and the subsequently entered into Master Subcontractor Agreements, which were silent as to dispute resolution. After construing the two agreements, this court concluded that the dispute among and between the parties fell within the arbitration clause of the SAA and granted the motion to compel arbitration.
* What the Opinion Means: There is a strong judicial preference to uphold and apply arbitration agreements wherever possible. If arbitration is not your preferred means of dispute resolution, you must make certain that the agreements you enter into are clear and precise regarding how disputes will be resolved.
4. In denying a motion to dismiss filed by the government under an Army Corps of Engineers contract for the construction of a Defense Logistics Agency facility in Pennsylvania, the U.S. Court of Federal Claims held that it had jurisdiction under the Tucker Act to adjudicate any claim arising under the Contract Disputes Act (“CDA”) that had been submitted to the Contracting Officer for a final decision. Walsh Construction Co. v. The United States, 132 Fed.Cl. 282 (May 31, 2017).
* What the Court Considered: Here, the court reviewed the underlying claims submitted by the contractor to the Contracting Officer to determine if they complied with the CDA and whether or not the Court of Federal Claims had jurisdiction over the contractor’s appeal of a total denial of its claims by the Contracting Officer. When considering a motion to dismiss an action for lack of subject matter jurisdiction, the Court is obligated to assume all factual allegations in the Complaint to be true and to then draw all reasonable inferences in favor of the Plaintiff, who bears the burden of establishing jurisdiction by the preponderance of the evidence.
* What the Court Said: To establish a differing site condition claim, the contractor must establish, by a preponderance of the evidence, that the conditions set forth in the contract materially differed from the subsurface or latent physical conditions at the construction site. To establish a claim for breach of the implied duty of good faith and fair dealing, the contractor must establish that the government acted in a way specifically designed to re-appropriate the benefits the other party expected to obtain from the transaction, thereby abrogating the government’s obligation under the contract. Where the contractor fails to submit a clear and unequivocal claim that the government breached the duty of good faith and fair dealing, the count in the complaint making these allegations should be dismissed because the Contracting Officer who ruled on the claim below was not provided with clear notice of the basis of the contractor’s claim or the relief being pursued.
* What the Opinion Means: In submitting claims under the CDA to the Contracting Officer, be certain that all of your claims are properly described, defined and submitted for consideration. While exact precision is not required for a matter to be reviewed upon appeal, the contractor must make certain that the underlying operative facts of its claims are presented to the Contracting Officer.
5. On an appeal of a summary judgment rendered in favor of a contractor’s surety by the District Court, a challenge by the contractor alleging bad faith by the surety who negotiated a settlement with the owner without the knowledge or participation of the contractor pursuant to the rights assigned to the surety by the contractor in an Indemnity Agreement, the U.S. Court of Appeals for the Sixth Circuit upheld the granting of summary judgment for the surety and did not find bad faith based on the rights granted to the surety by the contractor in the agreement of indemnity. Great American Insurance Company v. E.L. Bailey & Co., Inc., 841 F3d 439 (November 7, 2016).
* What the Court Considered: This action arose out of a construction contract awarded by the State of Michigan for a new prison kitchen at the Huron Valley Women’s Correctional Facility in Ypsilanti, Michigan. Here, the claims asserted against the surety by the contractor involved certain unilateral action undertaken by the surety to settle and resolve claims asserted against the contractor by the obligee and by subcontractors, pursuant to the indemnity agreement between the contractor and its surety. According to the contractor, the surety’s actions were in bad faith, a defense asserted by the contractor in his affirmative defenses at the trial level.
* What the Court Said: Having reviewed the facts de novo, the Court of Appeals did not find that the surety acted in bad faith pursuant to the surety’s right to settle its contractor’s claims against the state, notwithstanding the fact that the surety did not inform its contractor of the negotiations until a settlement had been achieved with the state. The court also found that the contractor had an opportunity to raise its bad faith defenses at the trial level, but that the contractor failed to present sufficient evidence of bad faith. In attempting to define bad faith, this court looked to similar cases in the insurance context which defined bad faith as “more than negligence but less than fraud” with characteristics of action being arbitrary, reckless, indifferent or with intentional disregard of the interests of the person owed a duty. Mere disagreement with the monetary amount reached by settlement is generally insufficient to establish bad faith.
* What the Opinion Means:
If you are a contractor involved in a dispute with your surety, relating to actions taken by the surety upon a contractor’s default pursuant to the agreement of indemnity entered into between the contractor and its surety, courts will strictly construe the indemnity agreements as written, absent fraud or illegality.
Joseph H. Bucci is a Partner in the Construction Litigation Group at Saul Ewing LLP, and resides in the Pittsburgh office. Joseph represents contractors, subcontractors, owners, real estate developers, wind farm developers, public utilities, architects, engineers, energy and pipe liners, construction managers, design builders, sureties and government agencies related to construction and/or real estate development projects.