The Do’s and Don’ts of Government Construction Contracts

1. The Do’s and Don’ts of Government Construction Contracts Or David Letterman’s Top Ten Traps for the Unwary Joseph C. Kovars, Esq. Ober|Kaler 100 Light Street Baltimore, MD 21202 jckovars@ober.com | 410.347.7343 Barbara G. Werther, Esq. Ober|Kaler 1401 H Street, N.W. Washington, DC 2005 bwerther@ober.com | 202.326.5015 www.ober.com

2. Top Ten Traps • Authority to bind the Government • Funding of contract—Anti-Deficiency Act • Recognizing constructive changes • Notice requirements • Bilateral modification releases • Documentation: letter in/letter out • Updating schedules • Cure notices/show cause • Claim certification • False claims

3. Federal Acquisition Regulation (FAR) • Provides uniform policies and procedures for acquisitions by Federal Gov’t agencies • Parts 1-51 are policies and instructions • Part 52 is standard form clauses • Part 53 is forms • FAR clauses apply to the extent they are incorporated into the contract, either full text or by reference. • The Christian Doctrine

4. Procurement Methods for Construction • Sealed bidding – FAR Part 14 • Only used where price is sole basis for award • Contracting by Negotiation – FAR Part 15 • Used when factors other than price are considered • Used for “Best Value” procurements • “Negotiation” is a term of art – its not a real negotiation!

5. Sealed Bidding • Invitation for Bid (IFB) is used • Bids are publicly opened • Award goes to lowest price, responsive bid by a responsible bidder • “Responsive” bid means complies in every respect with the requirements of the IFB (FAR 14.404-2) • “Responsible” bidder refers to financial resources, integrity, organization and skills, ability to meet schedule, and past performance (FAR Part 9.1) • Firm, fixed-price contract results.

6. Contracting By Negotiation • Request for Proposals is used (RFP) • Tradeoff between price and other factors (Best Value) • Evaluation factors and significant sub-factors must be clearly stated (Section M of RFP) • Must state whether all other factors are more important, less important or equally important as price • Separate technical and price proposals submitted (separate volumes)

7. Contracting By Negotiation - 2 • Technical evaluation by technical team • Price evaluation by price team • Technical & price kept separate until final selection decision • Oral presentations can be used • Can typically award on basis of initial proposals without “discussions” • Or can hold “discussions”, followed by BAFO

8. Contracting By Negotiation - 3 If discussions are held with one offeror, must hold discussions with all within competitive range Discussions must indicate deficiencies, significant weaknesses and adverse past performance information Exceptions may be taken, but are risky Additional features and enhancements may be offered

9. Contracting By Negotiation - 3 • Debriefing of unsuccessful offerors available on request • When to protest? • What’s the likelihood of winning a protest?

10. Funding – Anti-Deficiency Act Procurements are funded through appropriations. The appropriation is listed on the contract form; should be checked. Anti-Deficiency Act prohibits: Making or authorizing an expenditure or creating or authorizing an obligation in excess of the amount available in the appropriation or fund unless authorized by law. (31 U.S.C. s. 1341(a)(1)(B))

11. Funding – Anti-Deficiency Act Anti-Deficiency Act -- Government’s representatives cannot make any payment or a commitment to make payment for work unless there are sufficient funds “in the bank” (in the appropriation) to cover the cost in full. What does this mean in terms of the multiyear construction project?

12. Funding – Anti-Deficiency Act Limitation of Funds clause (FAR 52.232-22) - Monitor costs and notify at 75%. Right to stop work. Availability of Funds clause (FAR 52.232-19) – “Funds are not presently available for performance beyond ______. . .” Implied right to stop work. What happens when the Government runs out of money and there is no new appropriation?

13. Changes FAR 52.243-4 CHANGES (JUNE 2007) (a) The Contracting Officer may, at any time, without notice to the sureties, if any, by written order designated or indicated to be a change order, make changes in the work within the general scope of the contract, including changes -- (1) In the specifications (including drawings and designs); (2) In the method or manner of performance of the work; (3) In the Government-furnished property or services; or (4) Directing acceleration in the performance of the work.

14. Changes (b) Any other written or oral order (which, as used in this paragraph (b), includes direction, instruction, interpretation, or determination) from the Contracting Officer that causes a change shall be treated as a change order under this clause; provided, that the Contractor gives the Contracting Officer written notice stating (1) the date, circumstances, and source of the order and (2) that the Contractor regards the order as a change order. (c) Except as provided in this clause, no order, statement, or conduct of the Contracting Officer shall be treated as a change under this clause or entitle the Contractor to an equitable adjustment.

15. Changes (d) If any change under this clause causes an increase or decrease in the Contractor's cost of, or the time required for, the performance of any part of the work under this contract, whether or not changed by any such order, the Contracting Officer shall make an equitable adjustment and modify the contract in writing. However, except for an adjustment based on defective specifications, no adjustment for any change under paragraph (b) of this clause shall be made for any costs incurred more than 20 days before the Contractor gives written notice as required. In the case of defective specifications for which the Government is responsible, the equitable adjustment shall include any increased cost reasonably incurred by the Contractor in attempting to comply with the defective specifications.

16. Changes (e) The Contractor must assert its right to an adjustment under this clause within 30 days after (1) receipt of a written change order under paragraph (a) of this clause or (2) the furnishing of a written notice under paragraph (b) of this clause, by submitting to the Contracting Officer a written statement describing the general nature and amount of proposal, unless this period is extended by the Government. The statement of proposal for adjustment may be included in the notice under paragraph (b) above. (f) No proposal by the Contractor for an equitable adjustment shall be allowed if asserted after final payment under this contract.

17. Changes • The contractor is required to perform the changed work as directed and make claim under the Disputes Clause if not paid. (Constructive change or dispute over unilateral amount granted). FAR 52.233-1(i) • Permissible scope of changes • Drawings and specifications • Method or manner of performance • GFM/GFP • Directed acceleration • Time of performance (nights, weekends) • Place of performance

18. Changes • Types of Changes • Formal • Constructive • Formal/Express Changes • Directed change or CCD – unilateral from Government • Bilateral – supplemental modification to contract • Accord and satisfaction • Reservation of rights Who may initiate? Either party

19. Changes • Constructive Changes: • Conduct by C.O. or authorized representative which has the effect of causing the Contractor to perform work different from that set forth in the contract, • Even when not described or acknowledged as a change.

20. Changes Elements of a Change • Direction to do something different from existing contract • Within the general scope of the contract • Issued by C.O. (or duly authorized representative)

21. Changes • What does “within the general scope” of the contract mean? • No exact formula • 99.99% of every change you will ever see. • Prohibition on issuing changes outside the general scope because significantly different work should be put out for bid. • Changes beyond general scope are “cardinal changes.”

22. Changes • Cardinal change • 1965, Wunderlich Constructing Co. v. U.S., Court of Claims says changes beyond the general scope of the contract are “cardinal changes” • The number of changes, in and of itself, is not necessarily a cardinal change • More of the same kind of work (i.e., more asbestos abatement) not a cardinal change • Direction to build an airstrip when the contract was for the terminal probably is a cardinal change

23. Changes - Authority Who has authority to issue changes to the Contract? (FAR 1.603-3(a)) • Only the C.O. (or authorized representative) has authority to bind the Government and modify the contract • Who is the C.O. ? • What is authority of COTR?, ROICC?, etc.

24. Changes - Authority • The Government is not legally bound by unauthorized acts or acts of unauthorized agents • Apparent Authority is NOT AVAILABLE AGAINST THE GOVERNMENT. • Contractor’s duty to assure authority behind direction. • Don’t be a “Volunteer.”

25. Changes - Authority • When is the Government bound by unauthorized actions? • Implied Authority/Course of Conduct • Ratification • Equitable Estoppel

26. Changes - Authority Who does not have authority? • Inspectors • Contract administrators Getting confirmation: If you are “directed” by a Government representative, send a letter to the C.O. and ask the C.O. if you are to comply with the directive, i.e., have the C.O. ratify the “directive.”

27. Constructive Changes • What is a constructive change? (Subsection (b) of the changes clause) • A directive to the Contractor • Requiring the Contractor to perform additional or changed work • Contractor relied on the Government direction and incurred increased cost, added time • Notice given

28. Changes - Types of Constructive Changes 1. Interpretation of specifications and drawings • Ambiguity in the specifications/drawings • Patent vs. latent • The ambiguity is latent • The contractor’s interpretation is reasonable • The Government has a different interpretation and tells the contractor to perform in accordance with the Government’s interpretation • The contractor incurs additional costs by complying with Government’s interpretation

29. Changes - Types of Constructive Changes • Inconsistencies between drawings and specifications • FAR 52.236-21: • If only in specifications, or only in drawings, treat as if mentioned in both places • In case of difference, specifications govern over drawings • If the discrepancy is patent, duty to inquire pre-bid • If the discrepancy is latent, give notice, segregate costs

30. Changes - Types of Constructive Changes 3. Defective Specification • The Government warrants the adequacy of its specifications • Must be a design specification (implied warranty on Government under Spearin) • Specifications contain errors, omissions, inconsistencies • Contractor entitled to costs of attempting to comply and for performing corrective work

32. Changes - Types of Constructive Changes 3. Defective Specification • The Government warrants the adequacy of its specifications • Must be a design specification (implied warranty on Government under Spearin) • Specifications contain errors, omissions, inconsistencies • Contractor entitled to costs of attempting to comply and for performing corrective work

33. Changes - Types of Constructive Changes • Risk of Specification Problems • Design Specifications – Government owns risk • Performance Specifications – Contractor owns risk • Mixed Specifications – It depends (analyze in detail)

35. Changes – Types of Constructive Changes Risk of Specification Problems (cont’d) Design-Build Contracting Building Information Modeling (BIM)

36. BIM

37. Changes - Types of Constructive Changes 4. Inspection and Testing • Government over-inspection • Improper or incompetent rejection • Government directs a change in testing method or frequency • More stringent testing procedure than that set forth in contract • Interference by Government in unreasonable inspecting during performance

38. Changes - Types of Constructive Changes 5. Changes In The Method And Manner Of Performance • Where C.O. insists on a change in the contractor’s method and manner of performance of the work • Contractor can recover the difference in cost between its method and Government’s method • Example – change in planned sequence

39. Changes - Types of Constructive Changes 6. Constructive Acceleration • When Government effectively requires the contractor to finish earlier than planned

40. Changes - Types of Constructive Changes 7. Duties of Cooperation, Not to Hinder • NTP issued, but contractor not permitted to construct road to worksite • Work on railroad tracks can only be performed with Owner’s flagmen and at night, but no flagmen work at night • C.O. withheld design fix from contractor and charged contractor LDs for not finishing “on time”

41. Changes - Types of Constructive Changes 8. Cumulative Impact • Combined impact of a large number of changes • Ripple effect Note: Low rate of success in cases. Measurement of damages is “amorphous.” • Be careful when signing modifications • Bell BCI v. United States (Fed. Cir. 2009)

42. Changes Notice Requirements • Notice must be timely • Notice must be in writing • Notice must be sent to the C.O. • Notice must set forth the nature of the claim • Constructive changes– notice relates back 20 days, as to costs incurred • No time limit for defective specifications

43. Changes • Exceptions to Strict Notice Requirements (1) Where the Government knew about the basis of the claim * Actual knowledge can be shown from Government records * Presence of Government personnel on jobsite * Acts of Government in working with contractor to address issue * Meetings (2) Where the Government considers the claim on the merits without complaining about lack of notice (3) Where the Government is not prejudiced by the lack of notice * Government has burden of proving it was prejudiced * Prejudice occurs if Government cannot mitigate expense or elect any one of available options

44. Changes • Contractor Duty to Proceed • The Contractor must perform the changed work • C.O. can terminate contract for default if contractor does not proceed • Disputes Clause: Contractor can submit its claim • Equitable Adjustment • Price: • Bruce Construction v. U.S., 324 F.2d 516 (Ct. Cl. 1963) – “keep [a] contractor whole when the Government modifies the contract.” • “Actual, reasonable cost” ordinarily incurred because of the change • Actual cost plus reasonable OH + P • May include costs incurred for affected work areas not changed • Time • If the change order implicates work on the critical path, additional time may be required The Request for Equitable adjustment (REA)

45. Delays & Suspension Types of delays • Excusable, Compensable, Unexcused • Special Cases: • Sovereign vs. contractual acts; • Subcontractors & suppliers; • Bankruptcy & financial inability (unless Government caused) • Compensable Special Case: • Differing Site Conditions

46. Delays & Acceleration • Concurrent delays – burden on claiming party to untangle • Net effect : excusable delay; no damages recoverable by either party • Requires two delays on critical path • Highly fact intensive • The “Hurry Up and Wait” problem

47. Delays & Acceleration • Notice requirements: • 10 days. Prejudice rule. • Boards believe in contemporaneous records. • Right to early completion – conceptually accepted, but difficult to prove. • Schedule must be realistic and relied upon

48. Delays & Acceleration • Proving Delay Claims • Sophistication of Boards and Court of Claims for delay claims • CPM schedule is normal basis of proof • Some cases even say hard to imagine proving claim without CPM analysis • Sophisticated in review/analysis of CPM presentations • TIA/Windows • Impacted as planned, • Collapsed as built,

49. Delays & Acceleration • Important to use contemporaneous schedules and updates. • Have solid schedule as early as possible • Update it accurately and honestly. • Will have to live with project schedule for claims purposes • If Government restricts updates, create shadow schedule

50. Delays & Acceleration • Acceleration • Well recognized doctrine • Actual and constructive • Constructive – effect of requiring acceleration