Contractors sometimes plan to complete work on a project in less time than is allowed by the contract documents. Contractors who base the amount of overhead in their bid on such an early completion schedule may be damaged if early completion is delayed. Three recent board of contract appeals decisions help clarify the standard for recovery of delayed early completion damages on federal government projects.
In Rampart Waterblast, Inc., IBCA No. 3658-96 et al., 98-2 BCA p. 29,894, the Interior Department Board of Contract Appeals ("IBCA") ruled that early notification to the government of the contractor's intent to finish early was not a necessary prerequisite to recovery of damages for delayed early completion. In Maron Construction Co., Inc., GSBCA No. 13,625, 98-2 BCA p. 29,685, the General Services Administration Board of Contract Appeals ("GSBCA") found that a contract scheduling clause which precluded preparation of an early completion schedule was not an absolute bar to recovery of damages due to government-caused delays to early completion. In E.R. Mitchell Construction Co., Inc., ASBCA No. 48,745, 98-1 BCA p. 29,632, the Armed Services Board of Contract Appeals ("ASBCA") ruled that a contractor could not recover unabsorbed overhead during a government caused delay because the project finished on time and the contractor did not contend that the project could have been finished ahead of schedule. This decision was reversed by E.R. Mitchell Construction Co., v. Danzig, Secretary of the Navy, 175 F. 3d 1369 (Fed. Cir.1999).
Basic Standard of Relief
Taken together, these cases further clarify the standards for recovery of delayed early completion damages set by the Court of Appeals for the Federal Circuit in Interstate General Contractors, Inc. v. United States, 12 F.3d 1053 (Fed.Cir. 1993). In Interstate General Contractors the Federal Circuit held that in order to recover damages for delayed early completion a contractor must show that from the outset of the contract it:
- intended to complete the contract early;
- had the capability to do so; and
- actually would have completed early, but for the government's actions. 12 F.3d at 1058-59.
Intent to Complete Early
In Rampart Waterblast, Inc., the contract called for the repair of three levels of the parking garage in the John F. Kennedy Center for the Performing Arts in Washington, D.C. Rampart submitted certified claims to the contracting officer for an equitable price adjustment in the amount of $1,497,737 to compensate it for alleged changes, disruptions, loss of labor productivity, and delays (including a delayed early completion) caused by the government. The contracting officer, after considering Rampart's claims, denied them in their entirety in his final decision.
On appeal, the government filed a motion for summary judgment based on the argument that Rampart could not meet the first element of the Interstate General test. In its motion, the government asserted the record contained no evidence that Rampart gave the government early notice of its intent to better the contract schedule. Therefore, the government argued there was no credible evidence that Rampart, when it first took on the contract obligation, intended to complete the required work before the completion date specified in the contract.
The IBCA did not accept this argument. The board found that the government's motion elevated Rampart's intent to better the contract schedule and the timing of Rampart's communication of such intent to a position of greater importance than whether, during performance, Rampart would have been able to beat the contract schedule but for government-caused delay. The government's argument would, in effect, make early communication of a contractor's intent to better the contract schedule a critically essential legal element of a claim for delayed early completion, failing which there would be no recovery for the contractor. The board ruled that while Rampart must clear certain hurdles in recovering on its delayed early completion claim, early notification to the government of an intent to better the contract schedule was not one of them.
In Maron Construction Co., Inc., GSA awarded a contract to Maron for renovations to the J.O. Pastore Federal Building and United States Post Office in Providence, Rhode Island. On June 29, 1993, GSA issued the notice to proceed, which stated that the work required by the contract had to be completed within 660 days after June 29, 1993, which was April 20, 1995. On-site work was to begin no earlier than December 1, 1993.
Maron finished the work after the completion date established by GSA and after the date Maron claimed that it expected to complete the work. Maron submitted a claim to the contracting officer asserting that GSA had delayed Maron's progress starting shortly after December 1, 1993, when it began work. Maron calculated that GSA was responsible for a total of 320 days of delay, every day from December 1, 1994, when Maron says that it would have completed the contract work if not for GSA's delays, through October 16, 1995, when Maron substantially completed the contract work. Maron claimed that GSA was liable for delay damages for those 320 days.
The government filed a motion for summary judgment contending, in part, that Maron's delayed early completion claim was precluded by the contract's scheduling clause. This clause requried the contractor to create a project schedule showing the planned contract completion date as the scheduled completion date. The clause further provided that the government would only be liable for project delays to the extent that the delay exceeded the total float allowed in this schedule. GSA argued that any early completion plan would create float in the contractually required schedule and that the government could only be held responsible for delays that exceeded the contract's specified completion date. In effect, GSA sought to convert the scheduling process into a limitation of liability.
In considering the government's argument, the board concluded that it was possible for the government to draft a clause that limits or eliminates the government's liability for delay damages if the clause specifically and expressly exempts the government from liability. In this case, the GSBCA ruled that GSA's scheduling clause did not specifically and expressly state that GSA would be exempt from liability for early completion delay damages. Nor did the scheduling clause specifically and expressly state that Maron was precluded from completing the contract work early, even though a contractor is usually entitled to improve its progress and to finish before a contract's completion date.
The board also stated that if GSA wanted to preclude its liability for early completion delay damages by eliminating Maron's ability to finish early, it should have made this clear in the contract. GSA's scheduling clause instructed Maron that when it prepared its CPM schedule and updates to the schedule, it should make backward calculations for late finish dates by forcing the end date of the project to be contract completion date. In the GSBCA's opinion, these sections addressed the mechanics of constructing a CPM schedule. They did not specifically and expressly tell Maron that GSA would not be responsible for any claim for early completion delay damages, or that it was not possible for Maron to complete the project early. Therefore, the board concluded that Maron was entitled to present its delayed early completion claim at trial.
Plan to Complete Early
In E.R. Mitchell Construction Co., Inc., a contract was awarded to E.R. Mitchell for the construction of a clothing issue building at the Marine Corps Recruit Depot, Paris Island, South Carolina. The work included the demolition of two existing buildings. The original contract schedule required a completion date of August 18, 1993. Mitchell was able to complete its work on schedule.
E.R. Mitchell entered into a subcontract with Clontz-Garrison to perform mechanical work for the contract in accordance with the contract drawings and specifications. A schedule for completing the project was developed by E.R. Mitchell and its subcontractors and was approved by the government. Clonts-Garrison's subcontract work was scheduled to be completed by March 8, 1993. Clontz-Garrison did not actually complete its subcontract work until May 6, 1993.
On 8 October, 1992, Clontz-Garrison informed E.R. Mitchell that it discovered design conflicts in the specifications and drawings. The government did not dispute that the contract contained design defects that needed to be corrected. Following completion of the contract, Mitchell submitted a claim to the government on behalf of Clontz-Garrison for unabsorbed overhead incurred during the two month delay to the completion of Glontz-Garrison's work. Mitchell did not contend that it intended to finish early or that it could have finished the prime contract work early but for the government caused delay.
In reviewing this pass-through claim the board found that where a contractor is able to meet the original contract deadline or, as here, to finish early despite a government-caused delay, the originally bargained for time period for absorbing home office overhead through contract performance payments has not been extended. Therefore, in order to show that any portion of the overhead was unabsorbed, the contractor must prove that the bargained for ratio of performance revenue to fixed overhead costs during the stipulated performance period has been adversely affected by the delay. This can only be established if such a contractor shows that from the outset of the contract it:
- intended to complete the contract early;
- had the capability to do so; and
- actually would have completed early, but for the government's actions. Interstate General Government Contractors, 12 F.3d at 1058-59.
The board concluded that, because the performance period agreed to by both contracting parties was met, the period for absorbing home office overhead was not extended. Therefore, the board ruled that delay damages could not be awarded.
These three cases show first that in order to receive damages for delayed early completion, it is necessary to allege that the project would have finished early but for the government caused delay. This may be difficult to show in cases such as E.R. Mitchell where a subcontractor was delayed but the prime contractor had not plan for early completion. It does not appear that the board in this case considered the questions of Mitchell's liability to its subcontractor caused by the government's delay. If the government provided defective specifications to the project, then it is arguable that the government should pay increased costs directly caused by those defective specifications. These damages would appear to include damages owed to subcontractors for delayed early completion.
The Rampart Waterblast and Maron Construction Co. cases show that there are limits on the government's ability to protect itself from liability from early completion damages. Contractors should remain alert to the possibility of claiming early completion damages even in the face of defenses such as lack of notice and contract preclusion as were raised in these cases. Nevertheless, as a general rule, a contractor that bases its bid on planned early completion should communicate that fact to the government early and often. Remember that avoiding a problem is always better than obtaining a good litigated resolution of the problem.