What You Don’t Know Can Hurt You

Category | Briefing Papers

Introduction

Imagine this: you are just putting the finishing touches on your bid for a large construction project for the federal government, a major renovation at a federal office building. The building is in Seattle, Washington, and you are located in Minneapolis. Bid opening is three days from now. You have spent weeks, maybe even months, preparing your bid. You have examined the drawings and specifications incorporated into the solicitation. Nothing seems particularly unusual. You are certain that you have the perfect bid: low enough to win the project, but high enough to make a decent profit.

Then you receive a facsimile: an amendment to the solicitation from the project’s contracting officer. The amendment is brief. It states that there is an additional set of plans available for review by bidders. The plans are for a previous renovation of the building that occurred in 1970. Because the building was owned by King County, Washington, at the time (it was later transferred to the federal government), the plans are in the County’s facilities manager’s office. The amendment graciously extends the bid opening by three days, in case you want to review the additional plans. But the amendment does not actually incorporate by reference the County’s 1970 plans into the contract specifications. By the amendment, the contracting officer does not provide the “new” plans to bidders; she merely makes them available.

What do you do? Send someone to Seattle to look at 30 year-old drawings when you already prepared your bid? No way, you say. They cannot tell you anything new that you did not see in the solicitation, can they?

Fast forward two months. You were the low bid and were awarded the project. You decided not to bother with reviewing the 1970 plans. You have your crew in Seattle and have started work. A few days into the job, your project manager calls. While cutting a new doorway opening, one of the workers discovered a 1/4 inch steel sheet beneath the sheet rock. Further investigation reveals that several of the offices to be renovated are encased entirely in steel.

You immediately send a frantic letter to the contracting officer, providing notice that you have encountered an unforeseen condition and that you intend to make a claim for your additional costs under the contract’s “differing site conditions” clause. You follow up with a phone call to discuss the matter. The contracting officer says that she feels your pain, but that the government will not reimburse you for your extra costs. The metal plates were clearly shown on the 30 year-old drawings kept by the County, which she considers to be a part of the contract documents, and the plans were available before bid opening. The contracting officer explains that the County was very concerned for the safety of its elected officials and decided to make bulletproof offices. She also tells you that the metal your workers encountered is not actually steel; it is a special titanium alloy that will probably require a plasma cutter to remove. And you have to pay the rental rates for this special equipment.

Sound farfetched? The bulletproof offices encased in titanium alloy are pure fantasy. But the remaining facts in this scenario were compiled from decisions by the United States Court of Federal Claims and various federal boards of contract appeals. These surprise facts represent the reality of federal government contracting. Worse, contractors who find themselves in a similar situation may not be able to recover their additional costs resulting from these types of unforeseen conditions. Contractors can avoid these pitfalls, however, with proper planning and wise counsel from the attorneys at Fabyanske, Westra & Hart.

Differing Site Conditions

Our hypothetical contractor’s claim is based on what is known as a “Type I” differing site condition. The Federal Acquisition Regulations (FAR) describe Type I differing site conditions as those “subsurface or latent physical conditions at the site which differ materially from those indicated in [the] contract.” FAR 52.236 2(a)(2). In order to recover additional costs based on a Type I differing site condition, a claimant must prove:

1. Contract documents affirmatively indicate the subsurface conditions forming the basis for the claim.

2. The contractor must have acted as a reasonable and prudent contractor interpreting the contract documents.

3. The contractor must have reasonably relied on the indications of the subsurface or latent conditions in the contract.

4. The subsurface or latent conditions actually encountered at the site must materially differ from the contract indications.

5. The actual conditions encountered must have been reasonably unforeseeable.

6. The costs claimed must be solely attributable to materially different subsurface conditions.

Weeks Dredging & Contracting, Inc. v. United States, 13 Ct.Cl. 193, 218 (1987).

Contract “Indications”

The key step to determine whether our contractor can recover additional costs is to determine what documents make up the contract “indications.” Does it include the plans held by the County or just the documents actually provided as part of the solicitation? The general rule is that “contract ‘indications’ . . . include information both in the solicitation itself and in the documents to which bidders are directed by the solicitation.” Ashbach Constr. Co., PSBCA No. 2718, 91-2 B.C.A. ¶ 23,787 at 119,134 (1991); see also Hoffman Const. Co. of Oregon v. United States, 40 Fed.Cl. 184, 189 (1998).

In Ashbach, the claimant was a paving contractor excavating a parking deck renovation site at a U.S. Post Office. The contractor relied on soil borings contained in the solicitation to prepare its bid. The specifications also indicated that drawings prepared for a renovation 11 years earlier were available for review, but that the government did not guarantee the accuracy of those drawings. The contractor did not review the drawings before submitting its bid. Predictably, the contractor thereafter encountered a layer of waterproofing membrane not indicated by the borings, but shown on the drawings.

The Postal Service Board of Contract Appeals found that a reasonable contractor would have examined the drawings because they were within the government’s control, the contract directed bidders to make an assessment of the drawings, and reviewing the drawings would not have imposed a significant burden. The board denied the claimant recovery of its additional costs.

The Hoffman case is factually similar to Ashbach. In Hoffman, the claimant contracted to renovate a building which involved removing and replacing significant amounts of ductwork. In addition to the drawings included with the contract documents, the solicitation noted that the drawings for the original construction of the building and a previous HVAC renovation were available for bidders to review. Again, the claimant did not review the additional drawings. In performing the renovation work, the claimant encountered significant additional ductwork not shown on the contract drawings provided but which were shown on the additional drawings.

The Hoffman court found that the existence of the ductwork was foreseeable from the additional drawings and that there was no hindrance preventing the claimant from reviewing them. The court denied recovery for the additional work. In both Ashbach and Hoffman, additional drawings were found to be “indications” and part of the contracts, despite the fact that they were merely referenced in the solicitation and not incorporated or included.

Some courts have reached the opposite conclusion, however, in other cases. In P.J. Maffei Building Wrecking Co. v. United States, 732 F.2d 913 (Fed. Cir. 1984), the claimant was a demolition contractor who relied on drawings referenced by, but not incorporated into the solicitation to determine the amount and salvage value of steel obtained from the project. In P.J. Maffei, the drawings were in the possession and control of the New York City Parks Department, not the federal government, so the court relied, in part, on this fact to hold that the drawings were not contract indications. Note that in P.J. Maffei, the contractor was trying to argue that the additional documents were part of the contract, unlike the contractors in Ashbach and Hoffman. The end result was the same: the contractor did not recover his extra costs.

Other Considerations

Is our contractor sunk? Not necessarily. Our contractor has a strong argument that it acted reasonably, relying on the supplied drawings without consulting the additional drawings held by the County. Our contractor would probably argue that the “busy bidder” rule applies in this case. In Blount Brothers Construction Company v. U.S, 346 F.2d 962, 972-73 (Ct.Cl. 1965), the court stated a truth that all contractors can identify with:

(C)ontractors are business men, and in the business of bidding on Government contracts they are usually pressed for time . . . They are obligated to bring to the Government’s attention major discrepancies or errors which they detect in the specifications or drawings, or else fail to do so at their peril. But they are not expected to exercise clairvoyance in spotting hidden ambiguities in the bid documents . . .

The obstacle our contractor faces is the fact that the discrepancy between the two sets of drawings would have been obvious if the additional drawings were reviewed. However, the contractor can still argue it acted reasonably in relying only on the supplied drawings. Can the government really expect the contractor, as a “busy bidder,” to travel or send an agent to Seattle to review additional drawings outside the federal government’s control with only days notice?

The contractor may also persuasively argue that the government withheld its superior knowledge about the building’s plating. When the government possesses information pertinent to construction work to be performed under a contract, it has a duty to fully disclose and furnish to the contractor all information it possesses. If the government fails to disclose all relevant information and, in so doing, misleads the contractor, the contractor is entitled to an equitable adjustment to its contract. William A. Smith Contracting Co. v. United States, 412 F.2d 1325, 1338 (Ct.Cl. 1969). In the fictitious scenario above, it appears that the contracting officer knew about the plating, but deliberately withheld the information, so our contractor should call us to be paid in full.

Non-Federal Projects

Although the cases cited in this article come from various federal courts and boards of contract appeals, the principles behind them apply to contracting with any government body, including states, counties, and municipalities. Some state courts have explicitly adopted the law from these federal cases. See, e.g., Metropolitan Sewerage Comm’n v. R.W. Const. Co., 241 N.W.2d 371 (Wis. 1976). Most state courts, including Minnesota courts, will look to federal contracting law for guidance when deciding claims related to public projects. Accordingly, contractors should exercise the same caution when bidding on any public project.

Conclusion

Will our contractor recover additional costs? Perhaps, but it is far from certain. Potential bidders on federal projects should walk away from this little exercise with this in mind: what you don’t know can hurt you. A good contracting officer will supply bidders with all documents on which she expects them to rely. Contractors take a large gamble, however, if they choose not to review documents that are referenced in a solicitation, but not supplied.

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