Claim – Contract Interpretation Issue
Sample Claim – Underground Storage Tanks – Contract Interpretation
Dear (CONTRACTING OFFICER):
On behalf of our client, CONTRACTOR, we are submitting a claim on the above contract. This certified claim is submitted pursuant to the Contract Disputes Act of 1978 (41 USC 601 et. seq.) and the “Disputes” clause of the contract. We request a written decision of the contracting officer within the statutory time. In the alternative, we request resolution of the claim through negotiations. The amount of the claim is $411,641.00 and the basis for this request for additional compensation is more fully set forth below.
STATEMENT OF FACTS
1. On September 25, 1992, the U.S. Army Engineer District, Louisville (“Corps”) awarded a contract to CONTRACTOR (“CONTRACTOR”) for a statewide program in Illinois to remove and install underground storage tanks. The purpose of the contract was to obtain an experienced contractor in the management and removal of underground storage tanks, piping and equipment, cleaning of the tanks and piping, the monitoring and disposal of soils, water and contaminated wastes removed form the tanks, and the documentation of the process.
2. The successful low bidder for the project would be the one that offered the lowest coefficient for the work items that had been priced by the Corps before the submission of the bids. The work would be accomplished by delivery orders. The basis for the delivery orders would be the scope of work negotiated between the parties and reflected by the line items and prices set forth by the Corps in the unit price book, to which the contractor’s coefficient would be applied. The delivery orders would then become lump sum, fixed price contracts.
3. The bidders were cautioned that the coefficient must contain the overhead, profit, bond premiums, insurance, mobilization, demobilization and all state and local fees and any other contingencies in connection with the prepriced items. There would be two coefficients from the contractor: one for normal work hours and the other for overtime work.
4. Paragraph 1(e) of Section B stated that the Government would not make a partial award under the terms of the solicitation. All work under this tank removal contract would be performed by one contractor, though the Corps reserved the right to have other tank removal contractors also perform work in Illinois. (Paragraph 3, Special Contract Requirements)
5. CONTRACTOR’s contract contained the standard FAR construction provisions, including the “Changes” clause. The contract also stated that:
Each individual delivery order is a fixed price lump sum contract, and Contractor shall not request additional fund due to quantity of materials or labor required on project exceeding estimate quantities agreed on during negotiations. The only reason a contract will be modified is for additional requirements above those in the original scope of (sic) for unforeseen site conditions. (Paragraph 7f of the Special Contract Requirements)
6. CONTRACTOR bid a coefficient of .745 for both normal hour work and overtime work. CONTRACTOR’s determination of the coefficient was based upon the contract specifications and the items in the unit price book, with particular attention to the items that would comprise a typical work order for a tank removal and installation. This coefficient would be applied to the work orders established by the Corps for a specific tank removal. The delivery orders would list the individual work items and the corresponding prices established by the Corps in its unit price book for those items.
7. The Corps’s unit price book included, among other items, a number of unit price items for hauling excavated soil materials, based on mileage and cubic yard increments. The Corps’s unit prices for transportation set forth individual prices for labor and equipment, with no price in these categories for material.
8. Excavation and transportation of soil surrounding an underground storage tank is typically associated with the tank removal work, particularly if contaminated soil materials are present and clean backfill is required.
9. Performance of the work under this indefinite quantity contract would be by delivery orders issued by the Corps. However, the solicitation contained in Appendix B, the initial delivery orders that would be issued with the Notice to Proceed. These initial delivery orders set forth the individual work items for the tank removal task. Among the work items listed by the Corps was the removal and transportation off-site of soil material. Inclusion of this item with the work was consistent with CONTRACTOR’s experience on other tank removal projects and industry practices.
10. The Corps’s unit price book also set forth a work element denoted as “UST Special Waste.” This item of work did not have any prices in the labor or equipment category, only a $60.00 per cubic yard in the material category. The prices and categories in this unit price book had been drafted by the Corps prior to the solicitation of bids.
11. The Corps contemplated a three year contract, with a base year and two one-year option periods. The delivery orders could be anywhere in the state of Illinois and would be based upon written customer requests for specific tank removals.
12. CONTRACTOR performed the initial two work orders included in the contract at Appendix B. It removed the tank and the soil, as required, and received payment for these items based upon the terms of the contract. Since these initial delivery orders had a separate contract line item for removal and transportation of soil, CONTRACTOR received payment for these items of work, as it reasonably anticipated form the specifications.
13. After the performance of the initial work orders included in the contract, the Corps made the determination not to include the removal and transportation of soils in the delivery orders issued to CONTRACTOR. Instead it directed CONTRACTOR to remove the soil and transport it a short distance on-site to another contractor, which would treat the material and remove it from the facility. The Corps gave this portion of the work to another contractor, even though the Corps had set the unit prices for the CONTRACTOR’s soil transportation work and had led CONTRACTOR to believe that this soil work would be part of its tank removal contract.
14. There was nothing in CONTRACTOR’s contract that other contractors would be transporting or treating soils CONTRACTOR removed under the Illinois tank contract. The Corps did not advise CONTRACTOR or the other bidders at the pre-bid conference that other contractors may be transporting soils or that the Corps would be issuing delivery orders that excluded this major item of work. The specifications did not state that work on a particular tank removal delivery order would be split among other contractors.
15. The Corps did not advise CONTRACTOR at the pre-construction conference that other contractors would be transporting soil material that CONTRACTOR encountered during its tank removal work.
16. The Corps sought CONTRACTOR’s consent about other contractors performing the soil work before issuing the work orders at Scott Air Force Base in Illinois. CONTRACTOR objected to this idea, stating it would affect its coefficient. Despite CONTRACTOR’s objections, the Corps proceeded with its practice of excluding these items from CONTRACTOR’s delivery orders.
17. CONTRACTOR repeatedly objected to the Corps’ practice of excluding the soil transportation on the grounds that it impacted CONTRACTOR’s coefficient and, hence, its financial position on the contract. CONTRACTOR believed the Corps unfairly excludes a major and typical work item from the tank removal work orders that it had requested bidders to consider in determining their coefficients.
18. CONTRACTOR had been awarded the same contract to perform statewide tank removal in Indiana. During the administration of that contract, the Corps always included the soil transportation work item in the delivery orders. In Illinois, the Corps’ practice concerning soil transportation was a “hit or miss” proposition, with serious financial consequences to CONTRACTOR.
19. In addition to this change to the contract, the Corps also engaged in another practice that affected CONTRACTOR’s financial status under the Illinois contract. The unit price book included a cost category for “UST Special Waste.” During the issuance of delivery orders under the Illinois contract, the Corps would selectively include or exclude this item of work, based upon whether the Corps representatives believed that CONTRACTOR’s “bottom line” for the delivery order was fair and reasonable. The rationale for inclusion was that the “UST Special Waste” item represented transportation of material. There was nothing in the contract defining this item of work nor did the unit price book have any labor or equipment costs as components of this item of work. CONTRACTOR, after review of the contract documents, concluded that “UST Special Waste” represented a disposal or “tipping” fee for placement of contaminated materials in hazardous waste disposal sites.
20. In support of its position on the UST Special Waste line item, CONTRACTOR stated in a letter dated July 5, 1994, that if UST Special Waste was only a transportation item, as stated by the Corps, why were other transportation line items in the unit price book and delivery orders.
21. CONTRACTOR also had a dispute with the Corps over Delivery Order S003 (XYZ Fuel Yard). This delivery order was unilaterally issued by the Corps, with a lump sum price. The scope of work for this unilateral order required the removal of sixteen underground storage tanks. Prior to performance of this delivery order, CONTRACTOR provided the Corps with estimates of the amount of work to be performed to show the Corps that the work could be accomplished within the unilateral lump sum amount.
22. Upon completion of the delivery order for the XYZ Fuel Yard, CONTRACTOR sought payment for the lump sum delivery order. The Corps objected to paying the lump sum, stating that CONTRACTOR’s estimates of the work were binding. Since CONTRACTOR’s estimates were $33,000.00 less than the lump sum delivery order, the Corps paid the lump sum, less $33,000.00.
23. The contract did not require CONTRACTOR to maintain a record of the quantity of work performed for each line item in the scope of work or to monitor unit quantities during the performance of the lump sum, fixed price delivery orders.
24. The Corps also deleted the “Variation in Estimated Quantity” clause from the specifications so that no adjustments to the lump sum contract would be made based upon variations in the amount of units of work performed.
25. At the pre-bid conference, the Corps specifically stated:
Specific line items required to accomplish the delivery order will be identified, the quantities of work for each line item will be negotiated, and a lump sum price will be agreed to. This lump sum price will not be modified to reflect the actual quantities encountered during construction.
This statement was contained in the minutes of the pre-bid meeting, which were specifically made a part of the contract.
26. CONTRACTOR objected to the Corps’ unilateral decision to modify the lump sum agreement after performance of the work to reflect the actual units of work performed.
A. XYZ YARD DELIVERY ORDER
It is a well settled principle of contract law that the clear, unambiguous language of the contract will be a determinative factor in resolving the obligations and rights of parties. With respect to the XYZ Yard delivery order, the government unilaterally has chosen to ignore the clear language of the contract in favor of a self-serving position. The contract expressly stated that the delivery orders were to be lump sum contracts, with no adjustment in the price after performance of the work. The government further stated that if the quantities overran on the delivery order, that the contractor would not be able to obtain relief. The converse would also be true and consistent with the contract provisions.
Furthermore, consistent with this language and intent, the government deleted the “Variations in Estimated Quantities” clause from the contract so that if overruns or underruns in unit quantities did occur, there was no contractual right to adjust the unit prices. CONTRACTOR understood and accepted these provisions by entering into a contract with the Corps. This contract language also bound the Corps. If the quantities or the cost of performance was less than the lump sum delivery order, then the Corps bore that risk and the contractor would be paid the lump sum price for the work.
The Corps issued a lump sum delivery order for the XYZ Yard for the removal of sixteen tanks. CONTRACTOR submitted an estimate to the Corps to show that the work encompassed in the delivery order could be performed within the scope and price of that lump sum delivery order. After performance of the work, the Corps refused to pay the amount of the delivery order and, contrary to the clear language in the contract, paid only for the actual quantities of work performed by CONTRACTOR, even though these were less than the delivery order.
However, the Corps was bound by the same contract obligations as CONTRACTOR. It did not have the right to reject the lump sum amount in the delivery order in favor of a lesser price based upon an “after the fact” determination of quantities of work. The Corps’s action negated the express provisions of the contract. Such an interpretation was not acceptable or appropriate. U.S. v Johnson Controls, 713 F.2d 1541 (Fed. Cir., 1983). The provision that the work orders were lump sum contracts without adjustment for overruns and underruns was not susceptible to more than one meaning. Where contract provisions are set forth in unambiguous terms, “the words of those provisions must be given their plain and ordinary meaning.” Elden v. United States, 617 F.2d 254 (Ct.Cl., 1980). CONTRACTOR was entitled to the lump sum price for the work under S0003 without an adjustment for actual quantities.
B. TRANSPORTATION OF SOILS WORK ITEM
The Corps sought bids based upon a description of the work and the unit price book it had drafted; the bidders had to estimate and bid a coefficient based upon this information. Part of the work included the transportation of soils from the tank excavation to the disposal facility. CONTRACTOR reasonably relied on this item of work being part of the delivery order because this work is normally included in tank removal work and, consistent with that practice, the Corps included the transportation of soils work item in the three “initial” delivery orders set forth in the solicitation.
CONTRACTOR, therefore, reasonably calculated its coefficient during its bid preparation, based upon performing the transportation of soils work, as it was required to do. Laidlaw Environmental Services (GS), Inc., B-245587.2, 92-1 CPD 82. It detrimentally relied upon the Corps’ representation that this element of work would be part of the tank removal work orders in formulating its coefficient. It also relied upon the contract clauses that stated that the Corps would not issue partial awards of this tank removal work and the fact that other contractors would not be part of CONTRACTOR’s tank removal process.
If CONTRACTOR had known that the transportation of soil material would not be part of its work orders under the Illinois contract, it would have formulated its coefficient differently. Instead it has lost overhead and profit for its tank removal operations based upon a coefficient that was flawed because it was developed for all necessary items in a tank removal project, including the removal and transportation of soil.
C. UST SPECIAL WASTE WORK ITEM
During the performance of this contract, the Corps has intermittently applied the UST Special Waste work item to delivery orders for tank removal, stating that this item represented transportation costs. The Corps representatives unilaterally determined to include this work item in the delivery orders on the basis of whether the lump sum price to CONTRACTOR was “fair and reasonable.” This subjective evaluation violated the contract in two ways.
The Corps had to employ a strained interpretation of the UST work item in order to state that it applied to transportation of material since the work item’s cost components (determined pre-bid by the Corps) did not include any labor or equipment costs. Labor and equipment would have been necessary if this work element covered transportation, as alleged. Interpretations which strain the reasonable meaning are not acceptable. Laidlaw Environmental Services (GS), Inc., ASBCA No. 45365, 93-3 BCA 26,128. CONTRACTOR objected to the Corps’ interpretation and its subjective application based on “what’s the bottom line look like” basis.
If the Corps believed that the UST work item covered transportation of material, then it should have stated that or included labor and equipment as elements of this item in the Corps pre-priced cost book for the project. If there is an ambiguity as to the meaning or application of this term, it was created by the Corps as drafter of the specifications. As such, it would be construed against the Corps. Henry Shriek dba Shriek Construction Company, ASBCA No. 28414, 86-1 BCA 18,560.
The Corps interpretation and application of the UST to cover transportation costs also was contrary to its prior interpretation. CONTRACTOR also had a contract with the Corps for tank removal in the State of Indiana. This contract was identical to the State of Illinois tank removal contract. Under the Indiana contract, the Corps did not interpret the UST to apply to transportation of material. Rather, the term applied to the disposal fee for the disposition of the special waste. There was no dispute about its meaning or application in Indiana, unlike the situation with the Illinois contract.
The Boards of Contract Appeals will give great weight to an interpretation by the parties prior to a dispute. Max Drill Inc. v United States, 927 F.2d 1233 (Ct.Cl., 1970); Honeywell, Inc., ASBCA No. 25556, 83-2 BCA 16,551; John Jennings, Jr., GSBCA No. 7520, 87-2 BCA 19,284. The contemporaneous interpretation by the Corps of an identical term under an identical contract will be controlling, particularly, when, as in this case, it arose prior to a dispute about the work. Alliance Properties, Inc. ASBCA No. 42451, 94-1 BCA 26,462. It was improper and contrary to prior interpretations for the Corps to use the “UST Special Waste” item as a transportation item and, further, not to use it on an unilateral basis when the Corps believed the price for the work was already “fair and reasonable.”
On the basis of the foregoing facts and analysis, CONTRACTOR respectfully requests an equitable adjustment in the amount of $411,641.00 for the damages caused by various contract interpretations and actions by the Corps, which were contrary to the express language of the contract. If the Corps does not wish to resolve this matter through negotiation of an equitable adjustment, then CONTRACTOR requests a final decision of the contracting officer, in accordance with the Contract Disputes Act and the Disputes clause of the contract.