Resolving Disputes on Public Contracts

1. Resolving Disputes on Public Contracts James F. NagleOles Morrison Rinker & Baker, LLPnagle@oles.com

2. Phases of Dispute Resolution • Pre-contract • During performance • Making a claim • The formal disputes process Resolving Disputes on Public Contracts

3. Pre-contract—Advice to the Government • Pick a good contractor • Don’t just use past performance ratings • Don’t scare good contractors away with one-sided contracts • Don’t ignore the red flags Resolving Disputes on Public Contracts

4. Pre-Contract—Advice to the Contractor • Negotiate changes • Consider alternate bids • Avoid mistakes • Bid properly or run away Resolving Disputes on Public Contracts

5. Pre-Contract—Advice to Both Sides • Resolve the disputes process up-front • Partnering • The disputes process itself Resolving Disputes on Public Contracts

6. During Performance– Advice to the Government • Acknowledge problem • Offer consideration • Don’t mindlessly try to be tough • Understand the differences between legal rights and practical value Resolving Disputes on Public Contracts

7. During Performance—Advice to the Contractor • Recognize that suing your customer is not the best way to make friends and influence people • Recognize that suing the sovereign is fraught with problems Resolving Disputes on Public Contracts

8. Making a Claim—Give Appropriate Notice • Give notice to proper person • Consider the form of notice • Be as precise as possible regarding the quantum portion Resolving Disputes on Public Contracts

9. Resolving the Claim—Advice to the Government • Litigation is a drain on your resources • Fear of precedents Resolving Disputes on Public Contracts

10. Resolving the Claim—Advice to Contractors • The longer it goes on, the more it will cost you • How to resolve it • ADR • Litigation Resolving Disputes on Public Contracts

11. Typical Dispute Scenarios • US —> Prime • Prime —> US • Prime —> Subcontractor • Subcontract —> Prime Resolving Disputes on Public Contracts

12. Typical Disputes • Government/Buyer • Warranties • Deductive/Substitution Changes • Over Payment • Delay damages Resolving Disputes on Public Contracts

13. Typical Disputes • Seller • Changes—constructive changes • Delays • Differing site conditions • Property issues • Terminations Resolving Disputes on Public Contracts

14. The Changes Clause • Subparagraph (a) • “The CO may, at any time, by written order, and without notice to the sureties, make changes within the general scope of the contract.” • Subparagraph (b)—Equitable Adjustment • Subparagraph (c)—Notice Requirements • Subparagraph (d)—Disposition of Property • Subparagraph (e)—Duty to Proceed Resolving Disputes on Public Contracts

15. Scope of the Contract • No guidance in the regulations • Based on Statement of Work • No automatic test • Consideration of several factors Resolving Disputes on Public Contracts

16. Changes Outside Scope of Contract • Cardinal changes • Not covered by changes clause • Contractor does not have to perform • Others can protest • Must be funded with different money • Contractor can reprice contract Resolving Disputes on Public Contracts

17. Determining if Change is Out of Scope • Nature of the item • Purpose of the contract • Dollar value • Complexity of the contract • Number of changes • Fairness to the contractor • Effect on the competition • Cumulative impact Resolving Disputes on Public Contracts

18. Constructive Changes • Implied or Inferred • What are the changes? • Why are the changes occurring? • Who can approve the change? • What factors should be considered before approval? • Elements • A change • An order Resolving Disputes on Public Contracts

19. Who Can Constructively Change the Contract? • Virtually anyone other than the contractor • COs • Other CO representatives • Specially authorized representatives • Inspectors • Project managers and officers • Auditors • Negotiators • Other contractors Resolving Disputes on Public Contracts

20. Disclaimer Statement COR/COTR disclaimer You are hereby notified that I do not have the authority to direct you in any way to alter your obligations or change the SOW in your contract. Further, if the government, as a result of the information obtained from today’s discussion, does desire to alter your contract obligations or change the contract SOW, changes will be issued in writing and signed by the CO. You should take no action on any change unless and until you receive such a change order. Resolving Disputes on Public Contracts

21. Factors in Determining Constructive Changes • Authority of person giving “order” • Specifically expressed (not apparent) • Implied • Amount of discretion or authority • Disclaimers • Actions of CO • Vested person with implied authority • Ratified • Acquiesced—imputed knowledge Resolving Disputes on Public Contracts

22. Factors in Determining Constructive Changes (continued) • Reasonableness of contractor’s action • Reasonable reliance • Duty to inquire—suspicion • Time to inquire • Contractor’s experience • Contractor’s knowledge • Did the government get a benefit? • Volunteer not favored • Good faith Resolving Disputes on Public Contracts

23. Types of Constructive or Implied Changes • Contract interpretation • Interference and noncooperation • Defective specifications • Government information deficiencies • Superior knowledge • Misrepresentation • Acceleration Resolving Disputes on Public Contracts

24. Differing Site Conditions • Differing Site Conditions Clause (FAR 52.236-2) • Required in all fixed-price construction, dismantling, demolition, and removal of improvements contracts exceeding $25,000 • Stop • Give notice Resolving Disputes on Public Contracts

25. Differing Site Conditions (continued) • Two types of differing site conditions allow adjustment: • Subsurface or latent physical conditions at the site that differ materially from those indicated in the contract • Unknown physical conditions at the site, of an unusual nature, that differ materially from those ordinarily encountered and generally recognized as inherent in work of the character provided for in the contract Resolving Disputes on Public Contracts

26. Notice • Who must you tell? • What must you tell? • When must you tell? • So, what if you don’t tell? Resolving Disputes on Public Contracts

27. Equitable Adjustment • Difference between what would have cost to perform the original contract and the cost to perform the contract as changed • “Leave ‘em as you find ‘em” Resolving Disputes on Public Contracts

28. Understand the Basis of Claims • Some clauses exclude cost/profit or cap costs • Excluding cost/profit • Suspension of work or government delay of work • Multiyear SCA clauses • Capping cost • Special termination cost in DOD Resolving Disputes on Public Contracts

29. Measure of an Equitable Adjustment Resolving Disputes on Public Contracts

30. Request for Equitable Adjustment • Whichever side wants the benefit bears the burden • Must prove two things: • Entitlement • Quantum-costs/time caused by the claimed event Resolving Disputes on Public Contracts

31. Types of Changes Warranting Equitable Adjustments • Adding work • Deleting work • Substituting work • Delaying work • Accelerating work • Disrupting work Resolving Disputes on Public Contracts

32. Admiral Corp. ASBCA No. 8634, 1964 BCA 4161 Cost Original component $7.52 Substituted component 11.63 Included in bid for this item 12.48 What result occurs? Resolving Disputes on Public Contracts

33. Types of Delay • Inexcusable • Contractor responsible • Neither time nor money • Excusable • Contractor not responsible • Contractor receives time but no money • Compensable • Government responsible for a contractual act • Contractor receives time and money Resolving Disputes on Public Contracts

34. Concurrent Delays • Inexcusable and excusable • Neither time nor money • Inexcusable and compensable • Neither time nor money • Neither party can collect money damages from the other • Excusable and compensable • Time but no money Resolving Disputes on Public Contracts

35. Delays • What was supposed to happen (as planned)? • Why did the delay occur? • What did happen (as-built)? • Who has assumed the risk? • How long did the delay last? Resolving Disputes on Public Contracts

36. Weather Delays • Standard—unusually severe weather • Meeting the standard • What is usual? • Time • Place • Yardstick—rainy days, inches of rainfall, temperature, windchill, and so on • Length of historical database • Probability—above average? Resolving Disputes on Public Contracts

37. Weather Delays (continued) • What was experienced? • Types of records • Where recorded • Work days and times Resolving Disputes on Public Contracts

38. Weather Delays (continued) • Proving the delay • Impact on critical path • Whole or partial days • Types of impact (assess the damage) • Lost time • Reduced productivity • Unplanned work • Lingering effects Resolving Disputes on Public Contracts

39. Weather Delays (continued) • Did the contractor mitigate? • Reasonable precautions • For type of weather experienced • For common effects • Reasonable mitigation • Rescheduling • Substitutions Resolving Disputes on Public Contracts

40. Typical Delay Damages • Idle labor • Idle equipment and facilities • Labor, material, and other cost escalation • Unabsorbed overhead • Disruption • Acceleration Resolving Disputes on Public Contracts

41. Equipment Costs • Entitlement requirements • Equipment was dedicated specifically to project • Equipment would have been used, if not for delay • Equipment could not have been used elsewhere • Equipment was in sound workable condition Resolving Disputes on Public Contracts

42. Equipment Costs (continued) • How to prove damages • Rented equipment • Rent • Owned Equipment • Actual costs • Contract rates • Industry rates Resolving Disputes on Public Contracts

43. Unabsorbed Overhead • What is it? • What must the contractor prove for entitlement? • How does the contractor prove quantum? Resolving Disputes on Public Contracts

44. Unabsorbed Overhead (continued) • Calculation • The difference between the amount bid and the amount you were able to allocate or • The amount calculated using Eichleay formula Resolving Disputes on Public Contracts

45. Eichleay Formula contract billings contractor billings contract overhead days of performance X contractor overhead = overhead allocable to contract = daily overhead rate (DOR) DOR X days of delay = unabsorbed overhead *Includes period of delay Resolving Disputes on Public Contracts

46. Unabsorbed Overhead – Eichleay Method Pro[p]serv, Inc., ASBCA No. 20768, 78-1 BCA ¶ 13066 $143,646 675,748 $12,801 365 $35.07 x 150 = $5,261 Profit at 15% = $ 789 $6,050 X 60,221.00 = $12,801 = $35.07 Resolving Disputes on Public Contracts

47. Disruption, Loss of Efficiency, Loss of Productivity • “Death by a thousand cuts” • Work not necessarily stopped, just more difficult • Anything that affects the productivity the contractor would have achieved • Can be combined with added, deleted, substituted, delayed or accelerated work • Can be sole basis Resolving Disputes on Public Contracts

48. Disruption, Loss of Efficiency, Loss of Productivity (continued) • Causes • Delay due to adverse weather • Changes • Learning curve disruptions • Out-of-sequence work • Trade packing • Anything else that affects productivity Resolving Disputes on Public Contracts

49. Disruption, Loss of Efficiency, Loss of Productivity (continued) • Increased labor costs • More direct hours to do the work • More time lost to absenteeism and tardiness • More time lost to rework • Increased material costs due to rejects Resolving Disputes on Public Contracts

50. Proving Loss of Productivity • Flexy Plan Industry—GSBCA 4117, 76-1 BCA 11713 • Batteast Construction Co., Inc.—ASBCA 35818, 92-1 BCA 24697 • Shea, Proving Productivity Losses in Government Contracts, 18 Pub. Cont. L.J. 414 (1989) Resolving Disputes on Public Contracts