Free Motion for Partial Summary Judgment - District Court of Federal Claims - federal

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS SKANSKA USA BUILDING, INC., Plaintiff, v. THE UNITED STATES, Defendant. ) ) ) ) ) ) ) ) )

No. 07-143C Judge Firestone

PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT ON LIABILITY

ISSUES
1. Differing Site Conditions: Under the Government's differing site conditions clause, a Contractor is entitled to additional compensation for added costs of performing work caused by latent site conditions that differ materially from normal work of that nature. Skanska encountered lead contaminated soils that were neither expected nor disclosed in the bid documents and that increased the contractor's cost of performance by $148,498. Skanska is entitled to partial summary judgment on the issue of liability under the contract's differing site condition clause. 2. Constructive Change: When the Government either orders work outside the scope of a contract or restricts the manner in which work is to be performed causing the contractor to incur additional expense, a constructive change arises for which the Contractor is entitled to additional compensation. After discovering lead contamination in a soil stockpile, the Government directed Skanska to transport the contaminated soil to a government landfill far from the project at a cost of $148,498. Skanska is entitled to partial summary judgment on the issue of liability under the theory of constructive change. 3. Causation: Under §01572 of the contract, the Contactor was entitled to the salvage value available fro the disposal of surplus soils. Under §01572 the Contractor would have saved $148,498 in soil disposal costs, but for the Government's discovery of lead contamination and its subsequent directive to transport the contaminated soils to a landfill nine miles away from the project. The undisclosed lead contamination and the Government's directive to transport the contaminated soil to an offsite landfill were the proximate cause of a substantial financial loss by the Contractor.

FACTS
The Seattle District United States Army Corps of Engineers ("Government") posted a re-solicitation for FY03 Whole Barracks Renewal at Fort Lewis, WA, on

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November 2002. 1 On March 31, 2003, the Government awarded Contract DACA67-03C-0203, FY03 Whole Barracks Renewal, Fort Lewis, Washington ("the Project") to Skanska USA in the amount of $41,577,234.00 (subsequent modifications increased the contract total to $44,819,257.00). Skanska entered into a subcontract with Nacon, Inc. ("Nacon") to perform the site civil work. Nacon entered into a subcontract with Active Construction, Inc. ("Active") to perform earthwork and utilities work for the Project. (Skanska, Nacon, and ACI are hereafter collectively referred to as the "Contractor.") Skanska relied upon the bid of its earthwork subcontractor, Active, when it prepared and submitted its own bid on this project. In preparing its earthwork bid, Active reviewed the contract documents and made a pre-bid site inspection. The government's bid documents did not identify any lead contamination or any likelihood of lead contamination in the soils on site. Active expected that approximately twenty thousand yards of excess soil would need to be disposed of after it completed its excavation and grading work. Active did not know ­ and could not have known ­ at the time of its bid whether and exactly how much excess soil would actually have to be disposed of. Between the dates of Skanska's original bid and the date of the actual contract award, Skanska was asked to submit its best and final offer. (Skanska's best and final offer was improved through its utilization of minority contracting credits obtained by subcontracting for the services of a Nacon Corporation, a certified minority business enterprise.) Nacon agreed to perform several different diverse scopes of work, including
1

The citations to the specific facts upon which Plaintiff relies for this motion for summary judgment can be found in the accompanying Proposed Findings of Fact and the citations listed for each proposition stated there.

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among them the earthwork bid upon by Active. To accomplish the earthwork, Nacon subcontracted with Active at the same price Active had bid to Skanska. Nacon did not prepare an independent estimate of the cost of the earthwork, instead relying solely on Active's estimate and pricing. Accordingly, though Skanska subcontracted with Nacon, it relied both upon Active's evaluation of the work and pricing on both bid day (through a direct bid) and for its best and final offer (through reliance on Nacon's bid, itself relying on Active's evaluation of the requirements of the work) for its best and final offer upon which the final award was made. Contract section 02300, Earthwork, requires the Contractor to obtain written authorization from the Government to dispose of surplus excavated material and then to dispose of it off of the Fort Lewis reservation: Section 02300 Earthwork 1.9 Utilization of Excavated Materials ... No satisfactory excavated material shall be wasted without specific written authorization. Satisfactory material authorized to be wasted shall be disposed of outside the limits of Government-controlled land ... *** 3.2 General Excavation ... Surplus satisfactory excavated material not required for fill or embankment shall be disposed of outside the limits of Government controlled land. The contract documents as bid did not identify whether any disposal of excess soil would be actually required. Contract section 01572, paragraph 1.2, obligates the Contractor to dispose of all materials removed from the project in a responsible manner and expressly assigns to the contractor the proceeds or savings accrued from any such disposal: Section 01572 Construction and Demolition Waste Management ***

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1.2 Management The Contractor shall make a pro-active, responsible role in the management of construction and demolition waste and require all subcontractors, vendors, and suppliers to participate in the effort. Construction and demolition waste includes products of demolition or removal, excess or unusable construction materials, packaging materials for construction products, and other materials generated during the construction process but not incorporated into the work. In the management of waste consideration shall be given to the availability of viable markets, the condition of the material, the ability to provide the material in suitable condition and in a quantity acceptable to available markets, and time constraints imposed by internal project completion mandates. The Contractor shall be responsible for implementation of any special programs involving rebates or similar incentives related to recycling of waste. Revenues or other savings obtained for salvage, or recycling shall accrue to the Contractor. [Emphasis in original]. ... (Emphasis added except as noted). 1.7 PROJECT WASTE MANAGEMENT REQUIREMENT The contractor shall salvage or recycle at least 50 percent (by weight) of the generated construction, demolition and land clearing waste. (Emphasis added). 1.5.4 Mandatory Materials for Collection, The collection and segregation of certain waste materials is mandatory. These materials shall include: soils, organic materials (clean green), .... (Emphasis added). When Skanska's earthwork subcontractor, Active Construction, Inc., prepared its bid, it understood from Section 01572 that it had the right to sell any surplus soil that might need to be disposed of and retain the proceeds. The Contractor believed that given the existence of a market for clean soil, the cost of disposing of excavated soils would be entirely offset by the price it could be sold for. The Contractor's belief that it could sell excavated soils for the cost of disposal was reasonable given the express wording of the Section 01572. Relying on its understanding that surplus soils could be sold for what it

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would cost to dispose of them, the Contractor included no amounts in its bid price for the offsite disposal of excavated soils. A large soil stockpile of surplus soil that was placed on an adjoining parcel was generated during the course of the work. In anticipation of being requested to dispose of the surplus stockpiled soils, Active spoke with a number of civil contractors to identify who needed soil at that time. Through this effort, Active had contacted ESE Corporation which needed soil for use as surcharge fill in the construction of a local "Baby's R Us" store. ESE agreed to haul away the soils remaining in the Ft. Lewis stockpile at no charge to Active. Acting according to Section 01572 and disposal procedure described in Section 02300, Skanska informed the Government in RFIs 318 & 318R of Active's request to dispose of surplus excavated material outside the limits of Government land. Government provided that written confirmation in its response to RFI-318R. RFI-318 QUESTION: Due to a surplus in satisfactory soils on the project, approximately 15,000 cubic yards, Active is requesting permission to place a portion of this material in the low area next to the revised location of the North irrigation vault per FY03 RFI#25. This will ease future constructability issues with the area surrounding the North irrigation vault. Active is also requesting that they be allowed to remove the remaining material from the project site. Please note that this work will be done at no cost to the Government. RESPONSE: Fort Lewis has no problem with us depositing surplus satisfactory soils in the low area, however it must be kept below the level of the road and they would like to have it topsoiled and seeded. Coordinated with Larry McVay of Public Works 1 Oct 03. RFI-318R QUESTION: *** The

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Post Note: In response to conversation between Jason Hynes and Doug McNiesh with Skanska and Jim Packard and Tom Wilkin with the COE on 10/3/03, Active has noted that approximately 5,000 cubic yards of soil will be spread near the North irrigation vault. Stripping and hydroseed will be placed over the relocated soil. Active is requesting to remove 10,000 cubic yards of soil from the Post. Please confirm that this is acceptable. RESPONSE: *** Post Note: Confirmed. Regrade elevated area to grade to existing catch basin and/or add rings to adjust height of same. Continue erosion control around catch basin. Emphasis added). After having provided specific written authorization for the soils' removal, Government inspectors found lead contamination in the soil stockpile. The Contractor did not cause the lead contamination. The Government's contract documents did not disclose the lead contamination. The Contractor had no reason to anticipate lead

contamination in these soils. The Contractor did not know of the lead contamination when its bid was submitted. The government notified Skanska that the contaminated soils could no longer be disposed of as clean fill; instead, the contractor was directed to dispose of the contaminated soil at a "Class D" landfill, one certified for handing contaminated soil. The Contractor notified the Government that disposing of the soils in a "Class D" landfill would cause substantial additional expense for which additional compensation would be requested. After learning of the Contractor's impending change order request, the Government directed the Contractor to dispose of the contaminated soil at a hazardous waste disposal site on Fort Lewis property (Landfill #2), nine miles away from the project site. The Contractor disposed of the contaminated soils at the landfill as directed.

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The Contractor incurred substantial expenses in complying with the directive to dispose of the soils at the landfill. But for the discovery of contamination in the soil, the

Contractor would not have incurred these costs because it would have been able to trade the soils for the expense of their removal. The total costs the Contractor incurred, including markups for overhead and profit, due to the directive to dispose of the contaminated soil at the landfill came to $148,498.00. The contract included a Differing Site Condition clause obligating the Government to pay additional costs incurred by a Contractor when it encounters unusual site conditions differing materially from those the Contractor should have anticipated: 52.236-2 -- Differing Site Conditions (a) The Contractor shall promptly, and before the conditions are disturbed, give a written notice to the Contracting Officer of -(1) Subsurface or latent physical conditions at the site which differ materially from those indicated in this contract; or (2) Unknown physical conditions at the site, of an unusual nature, which differ materially from those ordinarily encountered and generally recognized as inhering in work of the character provided for in the contract. (b) The Contracting Officer shall investigate the site conditions promptly after receiving the notice. If the conditions do materially so differ and cause an increase or decrease in the Contractor's cost of, or the time required for, performing any part of the work under this contract, whether or not changed as a result of the conditions, an equitable adjustment shall be made under this clause and the contract modified in writing accordingly. *** On December 5, 2005, Skanska presented a Request for Equitable Adjustment to its contract price in the amount of $148,498.00. The request stated that the directive to haul the contaminated soils to a landfill nine miles away because of the discovery of lead contamination was a compensable change to its work and constituted a compensable differing site condition. On May 4, 2006, the Contracting Officer issued a Decision

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denying in part and granting in part the Request for Equitable Adjustment. All portions of the Contractor's request were denied except for "costs of soils management at Landfill #2 ... in the amount of $4,513.90" (i.e., grading work performed at the landfill). This suit was subsequently filed.

EVIDENCE RELIED UPON
Plaintiff Skanska relies upon the accompanying Declarations of David Berglund, Wes Johnson, and Terry R. Marston II, including their attached exhibits, as evidence in support of this Motion for Partial Summary Judgment.

ARGUMENT
1. Differing Site Condition: Skanska Is Entitled To Partial Summary Judgment On The Issue Of Liability Under The Contract Differing Site Condition Clause. The contract between the Government and Skanska includes a "Differing Site Condition" clause. The Differing Site Condition clause imposes on the government the duty to provide a contractor with an equitable adjustment to its contract price when facts supporting the existence of a compensable differing site condition exist. 2

52.236-2 -- Differing Site Conditions (a) The Contractor shall promptly, and before the conditions are disturbed, give a written notice to the Contracting Officer of -(1) Subsurface or latent physical conditions at the site which differ materially from those indicated in this contract; or (2) Unknown physical conditions at the site, of an unusual nature, which differ materially from those ordinarily encountered and generally recognized as inhering in work of the character provided for in the contract. (b) The Contracting Officer shall investigate the site conditions promptly after receiving the notice. If the conditions do materially so differ and cause an increase or decrease in the Contractor's cost of, or the time required for, performing any part of the work under this contract, whether or not changed as a result of the conditions, an equitable adjustment shall be made under this clause and the contract modified in writing accordingly. (c) No request by the Contractor for an equitable adjustment to the contract under this clause shall be allowed, unless the Contractor has given the written notice required; provided, that the time prescribed in paragraph (a) of this clause for giving written notice may be extended by the Contracting Officer. (d) No request by the Contractor for an equitable adjustment to the contract for differing site conditions shall be allowed if made after final payment under this contract. (End of Clause) [citation to record]

2

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The Differing Site Condition clause was adopted to reduce the prices the government paid for construction work when contractors increased their bid prices to protect themselves from the risk of financial losses caused by encountering latent site conditions that differed materially from the conditions the price of their work was based on. Youngdale & Sons Const. Co., Inc. v. U.S., 27 Ct.Cl. 516, 527 (1993). Under the clause, the government was able to reduce the prices it paid for construction work by shifting the risk of loss due to such differing site conditions to itself, eliminating the need for bidders to increase their prices to protect themselves. The purpose of the changed conditions clause is thus to take at least some of the gamble on subsurface conditions out of bidding. Bidders need not weigh the cost and ease of making their own borings against the risk of encountering an adverse subsurface, and they need not consider how large a contingency should be added to the bid to cover the risk. They will have no windfalls and no disasters. The Government benefits from more accurate bidding, without inflation for risks which may not eventuate. Foster Const. C.A. & Williams Bros. Co. v. U.S., 193 Ct.Cl. 587, 435 F.2d 873, 887 (1970) There are six elements to be proven to establish entitlement to additional compensation for a Type I differing site condition, one based on an affirmative misrepresentation within the contract documents. 3 However, there are only three

elements that must be proven to establish the existence of a Type II differing site condition.

(i) [T]he contract documents must have affirmatively indicated or represented the subsurface conditions which form the basis of the plaintiff's claim; (ii) the contractor must have acted as a reasonably prudent contractor in interpreting the contract documents; (iii) the contractor must have reasonably relied on the indications of subsurface conditions in the contract; (iv) the subsurface conditions actually encountered, within the contract site area, must have differed materially from the subsurface conditions indicated in the same contract area; (v) the actual subsurface conditions encountered must have been reasonably unforeseeable; and (vi) the contractor's claimed excess costs must be shown to be solely attributable to the materially different subsurface conditions within the contract site." Weeks Dredging & Contracting, Inc. v. United States, 13 Cl.Ct. 193, 218 (1987), aff'd, 861 F.2d 728 (Fed.Cir. 1988)(citations omitted); Youngdale & Sons v. U.S., 27 Ct.Cl. 516, 527 (1993)(citing with app'l).

3

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The plaintiff must satisfy three elements to establish said condition before it is entitled to recover, i.e., the plaintiff must establish that (i) it encountered an unknown physical condition; (ii) the condition was unusual; and (iii) the condition differed materially from those ordinarily encountered and generally recognized as inhering in the work of the character provided for in this contract. Servidone Construction Co. v. United States, 19 Cl.Ct. 346, 360 (1990). Plaintiff has submitted evidence supporting the existence of a Type II differing site condition. (i) The contractor encountered an unknown physical condition: Lead contamination of the soils within the stockpile was discovered in the course of the project just prior to the time when it was to be transported offsite, though it was not disclosed in the contract documents and was unknown to the earthwork subcontractor at the time its bid was submitted. The condition was unusual: The declaration of David Berglund, the earthwork subcontractor's estimator with 17 years of experience in the construction industry, includes his sworn testimony that it is unusual for soils encountered in the course of earthwork to be contaminated with lead. The condition differed materially from those ordinarily encountered and generally recognized as inhering in the work of the character provided for in this contract: The presence of lead contamination was material because contamination of this type necessitates that the soils be disposed of in restricted landfills certified for this purpose; as a result, lead contaminated soils has no market value making it materially different from clean soils that do have a market value in the region.

(ii)

(iii)

Because the Contractor encountered lead contamination within the soils stockpiled on the project, a condition that was not only unexpected and unforeseeable, but one that resulted in a material cost increase in the disposal of those materials, the Contractor is entitled to an equitable adjustment to its contract price for the added cost of the changed work under the theory of Type II differing site conditions. 2. Constructive Change: Skanska is Entitled to Partial Summary Judgment on the Issue of Liability Under a Theory of Constructive Change. In circumstances where the Government has directed a contractor to perform work that was not required under the terms of the contract it bid on, or has instructed the

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contractor to perform required work in a manner more costly than it had reasonably anticipated, the Federal Courts have utilized the concept of "constructive change" to support a contractor's right to recover additional compensation for the added cost of the changed work. There are two basic elements to a constructive change claim: [1] the change component (work changing the basic scope of the contract requirements) and [2] the order or fault component (the cause for the contractor to perform the work), such as government direction. "Thus, if the Government either expressly or impliedly ordered work outside the scope of the contract, or if the Government otherwise caused the contractor to incur additional work, a constructive change arises for that work performed outside of the scope of the contract." As the United States Court of Claims has stated: "[W]e, as well as the Armed Services Board of Contract Appeals, have held that, if a contracting officer compels the contractor to perform work not required under the terms of the contract, his order to perform, albeit oral, constitutes an authorized but unilateral change in the work called for by the contract and entitles the contractor to an equitable adjustment in accordance with the `Changes' provision." Flink/Vulcan v. U.S., 63 Ct.Cl. 292, 303 (Fed. Cir. 2004)(internal citations omitted). The `order' element also is a necessary ingredient in the constructive change concept. To be compensable under the changes clause, the change must be one that the Government ordered the contractor to make. The Government's representative, by his words or his deeds, must require the contractor to perform work which is not a necessary part of his contract. This is something which differs from advice, comments, suggestions, or opinions which Government engineering or technical personal frequently offer to a contractor's employees. John Cibinic, Jr. & Ralph C. Nash, Jr., Administration of Government Contracts 431 (3d ed. 1995) (quoting Industrial Research Assoc. Inc., DCAB WB-5, 68-1 BCA (CCH) ¶ 7069 at 32,685-86 (1968)). Skanska is entitled to summary judgment on the issue of liability here because, following discovery that the surplus soil was contaminated with lead, the Government

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issued Skanska a written directive instructing it to transport all of the contaminated soil to a landfill owned by Fort Lewis, but nine miles away from the project. Under the original contract documents, there was no requirement that surplus soils be transported to this landfill. To the contrary, the contract instructed the Contractor simply to remove it from "government controlled land" (i.e., Fort Lewis) without any further restrictions or mandate. In conjunction with the salvage provisions of Section 01572 of the contract, this enabled the contractor to dispose of the material in any manner it found to be the most economical. Prior to the discovery of the contamination, the government had issued written authorization for the contractor to dispose of the soils off of Fort Lewis and the contractor had secured an agreement with another earthwork contractor that needed clean fill material to haul the soils away at no cost in exchange for the soils themselves. Following discovery of the contamination, the Government reversed its authorization for the Contractor to dispose of the material off of Fort Lewis and instead instructed the Contractor to transport the entirety of the remaining soils in the stockpile to the Fort Lewis landfill, nine miles away. Complying with this directive caused the Contractor to incur unanticipated hauling costs totaling $148,498. Because the Government issued an order that required the Contractor to incur costs that it would not otherwise have been required to, the Contractor is entitled to an equitable adjustment to its contract price for the added cost of the changed work under the theory of "constructive change."

3. Causation: The Lead Contamination Differing Site Condition and the Government Directive to Transport the Soil to its Landfill Were the Causes of the Contractor's Substantial Financial Loss.

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Section 01572 paragraph 1.2 grants the Contractor the right to any compensation obtained for the value of materials removed emphatically: "Revenues or other savings obtained for salvage, or recycling shall accrue to the Contractor" (emphasis in original). The stated purpose of the section is to encourage conservation by the Contractor, while enabling the Government to realize the salvage value of surplus materials in the form of reduced bid prices. See, Section 01572, ¶1.1, "Government Policy." This policy applies as readily to soils as to any other form of construction salvage. By the terms of paragraph 1.2, section 01572 applies to any type of material "removed" from the construction site. By the terms of paragraph 1.7 of section 01572, section 01572 expressly applied to "land clearing waste." By the terms of paragraph 1.5.4 of section 01572, section 01572

explicitly applied to "soils" themselves. The clause assigns to the contractor the financial benefit (whether in savings or profit) of disposing of unneeded materials generated in the course of the construction project. By including this clause, the government is not subsidizing construction

contractors. It is in a very self-serving manner harnessing the ingenuity of its contractors for its own financial benefit by encouraging them to find the most economical way to recycle, salvage, or dispose of construction byproducts. See, e.g., Jefferson Const. Co. v. U.S., 172 Ct.Cl. 650, 348 F.2d 968, 973 (1965). And by conspicuously assigning salvage savings to the contractor, the Government gains the assurance that bidders will be forced to reduce their bid prices by the savings they expect to accrue through salvage, or risk being underbid for the work should they fail to. The Contractor believed, and reasonably so, that it had the right to retain any savings accrued through the disposal of surplus soils. It knew that there was a market for

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surplus soils. It properly obtained the government's confirmation that the soils were surplus and could be removed. It arranged with another contractor to haul these soils away from the project for free in exchange for being given the soils themselves for use on its own nearby construction project. In short, the Contractor had the contractual right, the government authorization, and an available resource with which to dispose of the surplus soils at no cost to itself. Therefore, the entirety of the cost the contractor incurred in complying with the Government's directive to instead haul the thousands of yards of soils at its own expense to a government landfill nine miles away from the project site is demonstrated to the sole and exclusive cause of its having incurred and additional $148,498 in unanticipated disposal costs.

CONCLUSION
The Government breached its contract with Skanska by (a) failing to acknowledge that the contaminated soil amounted to a compensable differing site condition and by (b) failing to acknowledge that the Government's directive to transport the soil nine miles to a landfill on Fort Lewis constituted a constructive change. The Contracting Officer's rejection of the Skanska's Request for Equitable Adjustment constitutes a breach of contract. For the reasons stated above, Skanska requests that it be granted partial summary judgment on the issue of entitlement to additional compensation (liability), leaving only the issue of quantification of damages for the time of trial.

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RESPECTFULLY SUBMITTED this 18th day of December, 2007. MARSTON ELISON, PLLC

By s/ Terry R. Marston II . Terry R. Marston II, WSBA No. 14440 Marston Elison, PLLC 16880 NE 79th Street Redmond, WA 98052 Telephone: 425-861-5700 Facsimile: 425-861-6969 E-Mail: [email protected] Attorneys for Plaintiff

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CERTIFICATE OF SERVICE

I hereby certify that on this 19th day of December, 2007, a copy of the foregoing "PLAINTIFF'S MOTION FOR PARTIAL SUMMARY JUDGMENT ON LIABILITY" was filed electronically. I understand that notice of this filing will be sent to all parties by operation of the Court's electronic filing system. Parties may access this filing through the Court's system.

s/ Terry R. Marston II