The task of proving the effect unforeseen events such as differing site conditions have upon a contractor’s costs is usually easier said than done.
A contractor’s use of its estimated cost as a basis for doing so—the Total Cost Method—is the least favored and has been the subject of several previous columns. But what happens when the government seeks to compare the contractor’s actual and estimated costs as a means of defending against the contractor’s claim? This approach was attempted by the Federal Highway Administration (FHWA) in a case reported in 2016.
Tucci and Sons, Inc. v. Dept. of Transportation, 16-1 BCA ¶ 35258 (Civilian B.C.A.) 2016 WL 681973, involved a contract for reconstruction of a 9.7-mile section of highway in the Mount Rainier National Park. Among the many items of work were 32,000 linear ft of Item A2380 “utility trench,” which the contractor bid at $43.25/ft, and 300 linear ft of Item A2360 “utility trench with concrete fill,” which it bid at $37/ft. The contract also contained the standard Differing Site Conditions clause found at Federal Acquisition Regulation (FAR) 52.236-2, which effectively shifted the risk of such conditions to the government.
When the contractor began work on the utility trench, it encountered what it considered to be a differing site condition and immediately notified the FHWA contracting officer. The contractor characterized the conditions as “numerous large boulders . . . which drastically slow and potentially inhibit the installation of the proposed utilities on the project.” The contractor further indicated that “the unusual size and concentration of the obstructions [were] unanticipated at the time of the bid.”
To maintain progress on the project, the contractor added a second crew to work on the utility trench. When the work was complete, it sought an equitable adjustment totaling $81,320.45, which the FHWA contracting officer rejected because he did not believe the conditions differed from what the contractor should have expected. The contractor formalized the request into a certified claim, which the contracting officer similarly rejected, and the contractor appealed to the Civilian Board of Contract Appeals.
During discovery in the appeal, the government learned that whereas the contractor had estimated its costs at $40.42 per linear ft for Item A2380 and $74.85 per linear ft for Item A2360, its actual costs for all utility trenches was $38.52 per linear ft. Accordingly, despite the alleged impacts from differing site conditions, the contractor still beat its estimate by a significant amount, and the utility work was quite profitable. Consequently, the FHWA filed a motion for summary relief, asking the board to dismiss the appeal. The FHWA argued that the contractor must show that “it experienced an increase in cost due to the physical conditions of the site,” and that it could not do so because its actual costs were less than its estimated costs.
The contractor argued that its estimated costs are irrelevant and that it should not be penalized simply because it still made a profit notwithstanding the difficulties it encountered due to differing site conditions. The contractor explained that during construction, it tracked on a daily basis time spent by both equipment and labor removing large rocks from trenches and disposing of them as well as extra time spent backfilling those portions of trenches it was forced to over-excavate to remove the rock. It argued that those costs would not have been incurred but for the rocky conditions; absent such conditions, its actual costs would have been even lower and its profit higher.
The board agreed and denied the government’s motion. Citing previous decisions on the subject, the board noted that “the appropriate measure of damages for a differing site condition is the additional cost incurred by the contractor as a result of the differing site condition. More specifically, the equitable adjustment for a differing site condition is the difference between what it cost it to do the work and what it would have cost if the unforeseen conditions had not been encountered.” It further noted that “the object of pricing an equitable adjustment is to maintain insofar as practicable the cost/profit relationship existing at the time of the change.”
As Tucci illustrates, contractors seeking change orders or filing claims for unforeseen events and changes in the work must remember to focus on proving what it would have cost to perform the work absent such events or changes.