Faulty Process

by Brian Morrow

Better Roads Staff | November 6, 2013

Contractor’s appeal for $2.3 million denied because of improper claim

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The Spearin doctrine – which originates from the case United States v. Spearin – provides that contractors are not responsible for defective plans or specifications. Instead, the owner impliedly warrants the sufficiency of plans and specifications provided to the contractor. A contractor is entitled to reasonably rely upon an owner’s plans and specifications in preparing its bid and performing the work. As a result, the Spearin doctrine is often used as a sword by contractors to recover compensation for claimed extra work.

In federal government contracting, however, to invoke the Spearin doctrine or other legal remedies, claims must first be submitted to the Contracting Officer (CO) for decision. If claims are presented for the first time on appeal, the courts lack jurisdiction to consider such claims. Whether a claim on appeal is new or essentially the same as presented to the CO depends on whether the claim derives from common or related facts.

In the recent matter of Appeal of Optimum Services, Inc. (Sept. 10, 2013), the Armed Services Board of Contract Appeals (Board) denied Optimum’s appeal regarding claimed extra costs of $2.3 million and a five-month delay, in part, because Optimum’s Spearin claim regarding defective specifications was raised for the first time on appeal.

On June 19, 2009, the U.S. Army Corps of Engineers (Corps) awarded Optimum a contract for $4,073,158.96 involving the Aquatic Ecosystem Restoration at Rose Bay, Florida. The project involved the restoration of inter-tidal areas in Rose Bay. The contract was divided into a base item to construct a disposal area with weir structures on Lost Creek Island, with option items to dredge up to 152,000 cubic yards of sediment from Rose Bay. The dredged materials were to be placed in the disposal area on Lost Creek Island.

The project disposal area was to be constructed of a berm enclosing the disposal area. Once constructed, the disposal area would provide a containment area where the wet dredged materials could be deposited. The water from the dredged materials would drain through pipes in the weirs into the Intracoastal Waterway.

The contract required Optimum to design and construct the weir structures, including timber piles to anchor the weirs. The timber piles had to be anchored to prevent uplift from water forces, resist wind loads and include a proper factor of safety. The specifications contemplated the use of round timber piles to support the weir structures and included a method of analysis and design requirements for the contractor to design the piles. CBC Engineers was hired to design the timber piles.

Initially, CBC designed 50-foot timber piles. The Corps rejected this design as inadequate for uplift and wind loading and required resubmittal. CBC redesigned the timber piles a second time to 78 feet in length, which the Corps rejected due to inadequate uplift resistance. CBC redesigned the piles a third time to 94 feet in length, which the Corps rejected based on an inadequate factor of safety. CBC redesigned the piles a fourth time to more than 100 feet in length. However, piles more than 60 feet in length are not stock items and typically need to be custom ordered. The lead-time to order 100-foot piles is approximately four months. Due to the long lead-time to order the 100-foot piles, Optimum changed the design to shorter timber piles with helical anchors and deep concrete footings.

After construction was completed, Optimum submitted a request for equitable adjustment (claim) for $2.3 million and a five-month time extension. The Corps rejected the claim. Optimum appealed.

On appeal, Optimum argued the specifications were defective based on the Spearin doctrine because they required the use of timber piles, and they required piles more than 100 feet in length, which required a four-month lead time for ordering that would consume the entire contract time (116 days) to complete the base item contract. The Corps argued that regardless of merit, Optimum did not properly raise this argument in its claim. Instead, Optimum raised the argument of defective specifications for the first time on appeal.

Brian Morrow

Brian Morrow

The Board reviewed Optimum’s claim and the CO’s decision. The Board found Optimum’s claim was based on whether a differing site condition existed, whether the Corps delayed returning submittals and whether Optimum was responsible for concurrent delays even if the Corps delayed in returning submittals. The key facts underlying Optimum’s claim to the CO were based on subsurface conditions and the submittal review process.

In contrast, Optimum’s timber pile claim was based on whether timber was suitable for anchoring the weirs and the availability of lengthy timber piles. Because Optimum raised its timber pile claim on appeal, and because the claim was based on different facts than Optimum’s claim to the CO, the Board determined they lacked jurisdiction and denied the appeal.

The Optimum matter illustrates the importance of including all bases for relief in a claim to the government. The failure to do so can be fatal. Here, Optimum’s appeal was denied because it failed to properly raise the issue of defective timber pile specifications in its claim to the CO.

The Board did not dispute, or even address, the potential validity of Optimum’s claim. Instead, because the issue was not properly presented, Optimum’s appeal for $2.3 million was denied.

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