It is one thing to disagree about certain aspects of a construction project. It’s quite another when disagreements justify the termination of a contract due to default.
Prime example: In a recent case, a contractor doing work at a federal government facility faced termination for default where he repeatedly insisted on changing designs, failed to submit required documents and didn’t submit a safety plan. (Appeals of Industrial Consultants, Inc. d/b/a W. Fortune & Co., ASBCA No. 59622, 3/10/17)
When construction projects end up in legal disputes, the terms of the contract generally control the outcome. And sometimes a breach of the contract results in a termination due to default.
Of course, not every breach is a deal-breaker. Only a material breach warrants termination. Courts have characterized a material breach as a substantial failure to perform or a violation of terms that is substantial enough to invalidate a contract’s intent. Essentially, a material breach is so fundamental to the terms of the contract that it defeats its main purpose.
One instance that can result in termination is a failure to follow design documents. In a classic case, the Appellate Court of Connecticut held that the construction of a kidney-shaped pool was a substantial deviation from the peanut-shape listed in the contract and that it constituted a material breach. The pool contractor’s refusal to comply with the contract’s specifications justified termination. (Strouth v. Pools By Murphy & Sons, Inc., 829 A.2d 102, 8/26/03)
Another basis for contract termination is a delay in completing the work by the date specified in the contract or where circumstances make timeliness critical. In some cases, a combination of failure to follow design and lack of timeliness can combine for a justified termination.
Facts of the Recent Case
A federal research and engineering facility in Hanover, NH, put out a contract to upgrade its heating, ventilation and air conditioning (HVAC) equipment. Although the scope of work was limited by budget constraints, the job was designed to include replacement of the air handling and condensing units, the variable air volume terminal units and the existing louvers, as well as ductwork modifications.
Prospective bidders were “urged and expected” to attend a pre-bid site visit conducted by the U.S. Army Corps of Engineers and told the work would have to meet certain Army Corps specifications. The contractor in question declined to visit the site before making the bid. The firm’s bid price was the lowest bid by a 35% margin.
The parties entered into a contract that allowed more than a year to complete the work. Work on site could only be performed on no more than four consecutive weekends after electrical work was completed by a third party. And that work couldn’t be finished until two months before the contract’s specified completion date.
Safety Plan and Product Data
One of the contract issues relating to the dispute was a standard government requirement that the contractor had to submit for approval by the contracting officer 1) an accident prevention plan and 2) product data for the air handling unit and other equipment.
The contractor visited the site for the first time a little over a month before work was scheduled for completion. After this walk-through, the contractor concluded that the government’s design had significant defects. He then began a campaign to redesign the work, which he refused to drop even though the Army Corps repeatedly told him to build as designed.
In the course of this process, the contractor submitted numerous Requests for Information to which the government promptly responded. Subsequently, the contractor either delayed in providing government-requested submittals or never provided requested submittals at all.
“Lack of Response”
Eventually, the officer in charge of the work sent three notices to the contractor, demanding that deficiencies be fixed. Numerous communications went back and forth between the parties. According to the officer in charge, the contractor was accusatory, combative and unwilling to cooperate. Two days after the scheduled completion date, the officer in charge issued a termination for default, citing the firm’s “lack of response regarding (the) request for required submittals, and to complete the contract as written.”
The outcome: The case went to an administrative judge for the Armed Services Board, who ruled that the contractor failed to:
- Complete the work in a timely fashion,
- Proceed with the work after the Amy Corps rejected its proposed changes to the project,
- Furnish some of the requested submittals, and
- Gain approval of other submittals.
Because the contractor was unable to demonstrate that the defaults were excusable, termination for default was granted.
Stick to Basics
Although you may have some leeway on construction projects, you must adhere to the basic contract. If it states that you must build in a certain way, follow the specified design or run the risk that your firm will be terminated for default.
4 Tips on Government Bids
When work in the private sector slows, you might be able to tap into another source of revenue: federal and local government authorities.
But winning a government bid is hardly a slam dunk, and your firm may find the process to be tedious and sometimes overwhelming. Here are four basic tips to help you get started.
- Start small and end big. Most government agencies place a value on past success. Win a few small contracts and then you can move on to a bigger piece. Once you get your foot in the door, keep it there until you’re ready for the next step.
- Do the legwork. Fortunately, you can find most of the resources you need online. First, sign up with the Central Contractor Registration (CCR) database, creating a profile so government procurement officers can find you. Then sign up for the pre-approved bidder list for the General Services Administration (GSA).
- Keep your nose to the grindstone. This is a marathon, not a sprint. It may take a couple of years or even longer to win your first bid. Those who throw in the towel early aren’t around to finish the race.
- Foster relationships. As it is in the private sector, developing relationships with government procurement officers is essential to continued business. In addition, partnering with other entities may lead to future payoffs.