Federal Circuit Affirms Absence of Differing Site Condition But Remands for Delay Claim

Mary C. Oswell collection, Bonita Museum,
available at http://sunnycv.com/southbay/exhibits/water.html 

The case Meridian Eng'g Co. v. United States, No. 2017-1584, 2018 WL 1386147, at *10 (Fed. Cir. Mar. 20, 2018) concerned a dispute between the federal government and a contractor related to the construction of flood control structures and the relocation of a sewer line in Chula Vista near San Diego, California.  After starting work, the contractor encountered "subsurface organic/unsuitable material” and “a layer of dripping saturated dark clay material under which a clean layer of sand is producing water.”  As a result the parties modified the contract - selecting larger pipes, reinforced concrete, more soil investigation, but to no avail.  The project was terminated after further structural failures.  The contractor then sought extra costs for what it deemed a Type I differing site condition ("DSC") and for delay costs for inclement weather. The Court of Federal Claims denied the claims and the contractor appealed to the United States Court of Appeals for the Federal Circuit.  The Appeals Court reviewed for "clear error."

Under this federal contract, a Type I DSC claim arises when the subsurface or latent physical conditions at the site differ materially from those indicated in the contract documents.  The Appeals Court recounted that typically whether "a contract contained indications of a particular site condition is a matter of contract interpretation." Id.  As part of its burden of proof, the contractor needed to show it acted as "a reasonable contractor [when] reading the contract documents as a whole [and] interpret[ing] them as making a representation as to the site conditions.”  Besides reliance on the contract and proof of damages, the contractor also needed to prove that “the actual site conditions were not reasonably foreseeable to the contractor with the information available to the particular contractor outside the contract documents” as well. Id.  The Appeals Court agreed with trial court's conclusion that the saturated soil conditions were reasonably foreseeable from the contract documents.  In particular, the contract stated that the worksite was located on a floodplain and the descriptions of the incorporated boring logs expressly stated that "variations may exist in the subsurface between boring locations."  The court also emphasized that "actual conditions at the site indicated such [saturated] conditions" and the contractor was charged with knowing information that could be gleaned from a pre-bid site visit.  The court found important that there was no testimony from the contractor otherwise regarding the actual conditions.

For the contractor's part, it argued that the contract had identified the areas of the project as "hard unyielding material.”  But the Appeals Court was unpersuaded in the face of disclaimer contract provisions noting "unstable material" and boring logs that were determined to indicate otherwise. The contractor also balked that trial court found that an "independent soils investigation" was something a reasonable contractor would have performed.  Again the Appeals Court disagreed concluding that the underlying decision actually did "not impose an improper requirement for investigation." Lastly, the Appeals Court disposed of the contractor's argument that the agreed-to modifications to the contract served as admissions by the government that a Type I DSC existed because "a contractor is not entitled to the benefit of any presumption arising from the [CO]'s decision." Id.

Although the contractor did not prevail on the DSC claim, the Appeals Court did breathe new life into the delay claim for having to work in inclement weather.  The trial court had dismissed this claim as well on account of an "accord and satisfaction" as a result of contract modifications. However, the Appeals Court disagreed noting that the contract modification did not represent a meeting of the minds to dispose of these inclement weather delay claims especially in light of the government's actions post-modification - requests for estimates, draft modifications with these claims included, offer to review further documentation.  Accordingly this delay claim was remanded for further hearings.

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The author, Katharine Kohm, Esq. is a committee member for The Dispute Resolver.  She practices construction law at Pierce Atwood, LLP in Providence, Rhode Island.

  

 

A Contractor’s Remedies Under the Miller Act May Not Be Conditioned on State-Licensing Requirements.

In a matter of first impression, the United States Court of Appeals for the Ninth Circuit ruled that even though a contractor violated a state law requiring it to have a contractor’s license, the contractor was still eligible to make a claim under the Miller Act on a federal construction project. This decision brings the Ninth Circuit into a general agreement with other federal appellate courts that state law cannot abridge or condition a contractor’s rights and remedies under the Miller Act.

Plaintiff Technica was a subcontractor on a federal project in California. Technica provided almost $900,000 worth of labor and materials, but received less than $300,000 in payments. As a result, Technica filed suit under the Miller Act against the general contractor and its payment-bond surety.

Section 7031(a) of California’s Business and Professions Code precludes a contractor from maintaining an action to collect compensation for its services unless the contractor was licensed during the performance of the contract. Technica did not hold a California contractor’s license. The district court granted summary judgment in favor of the general contractor and the surety, holding that the state-licensing statute barred Technica from pursuing claims for nonpayment under the Miller Act.

In considering the appeal, the Ninth Circuit examined the Miller Act’s strong policy in favor of protecting subcontractors on public projects. Sovereign immunity prevents liens from being placed on public land, so Miller Act bonds are used to provide contractors an alternative means of securing payment on federal construction projects. Moreover, the Miller Act is considered highly remedial in nature and is liberally construed to protect entities that labor and/or provide material to public projects. The remedy provided by the Miller Act was federal in nature and the law that would prevent the unlicensed contractor from recovering was a state law. In addition, the court felt that enforcement of state-licensing requirements against Miller Act claims would “wreak havoc” on the uniform application of federal law, particularly in federal projects spanning multiple states.

The Ninth Circuit focused on the distinction between federal and state law as well as federal preemption in reversing the decision of the district court. It found that the state law could not abridge an entity’s right to pursue a Miller Act claim. The court conceded that while state contract law was sometimes used in evaluating a Miller Act claim, state contract law was not used to affect the rights established by the Miller Act.

This decision was one of first impression. It likely has broad applicability beyond the Ninth Circuit, as many states have contractor-licensing requirements.

Technica LLC ex. rel. v. Carolina Cas. Ins. Co., No. 12-56539, 2014 WL 1674108 (9th Cir. Apr. 29, 2014).