Two pillars of contracting are reason and accountability.
There are others, of course, but these two are particularly important as they are codependent. When all parties to a contract are reasonable, the contract terms should help them all to realize the benefits of the bargain. When a party to a contract is unreasonable, the contract terms should help to hold that party accountable. When all parties to the contract are unreasonable, even then the contract terms should help to hold all parties accountable. Of course, all contract terms include legal standards not expressly stated in the contract but included by operation of law. With this in mind, let us review a recent prior installment of this column against an even more recent appellate court’s decision.
For the April 2020 issue of Roads & Bridges, I wrote the Law column published as “Risky Business.” That installment reviewed the Armed Services Board of Contract Appeals decision granting the appeal of John C. Grimberg Inc. against the U.S. Army Corps of Engineers on a project at Fort Detrick, Maryland. In that project, the contractor relied upon only two soil borings (out of 46 total borings) to estimate the excavation. The two borings relied upon were nearest the excavation area, while all other borings were 300-500 ft away. All borings were in an area known by all parties for its karst geology, which the Board aptly described as bearing “consistently inconsistent” soil conditions. The Board found the contractor’s reliance on only the two soil borings nearest the excavation site was unreasonable. The Board also found the government’s expectation of more accurate estimation was unreasonable given the known conditions. The actual quantity exceeded the estimate by 375%.
Nevertheless, the request for proposal specifically provided “the contractor was entitled to rely upon the Government’s Geotechnical Report.” Relying upon this fact and upon the significant additional excavation, the Board weighed the contractor’s unreasonableness against the government’s unreasonableness and allowed the contractor to recover about 75% of its differing site conditions claim. The Board held that this allowance for the contractor “reflects a fair and reasonable estimate of what was realistically indicated [by the Geotech Report] regarding the extent of the rock” (emphasis added). The Board held that although both the contractor and the government were unreasonable, the contractor was less unreasonable than the government.
The government appealed the board’s decision to the U.S. Court of Appeals for the Federal Circuit. The Appellate Court did not reevaluate the facts, but did acknowledge “the Board’s desire to reach a conclusion it felt was not unjust in the circumstances.” However, the Board’s finding that the contractor’s reliance on only two out of 46 borings was unreasonable proved fatal to the contractor on appeal.
In its recent opinion of June 9, 2020, the Appellate Court reversed the Board’s decision. In articulating this reversal, the Appellate Court applied the legal standard that to successfully receive an equitable adjustment, contractors must prove they were/are reasonable. It matters only that the contractor was/is reasonable. It matters not if the government was/is unreasonable.
This may seem a harsh result when, after seemingly succeeding nearly two years ago before the Board, the contractor now bears the burden of both parties’ unreasonableness. But these are the rules of the game—the terms of the contract. Both parties to the contract agreed upon these rules/terms before any disputes arose. These rules/terms hold the government accountable for an equitable adjustment when the contractor is reasonable, and they hold the contractor accountable for its own costs when the contractor is unreasonable. In this instance, reason begets accountability. I hope reason prevails more often than not.