By Gail S. Kelley, P.E., JD
The U.S. Civilian Board of Contract Appeals concluded that declaratory relief in situations involving a “fundamental question of contract interpretation or a special need for early resolution of a legal issue” is appropriate. Even though a contractor on a government project has a contractual obligation to perform in accordance with the contracting officer’s decision until it receives a different ruling on the contract scope, the contractor does not have to wait to seek such a ruling from the Board of Contract Appeals until it has performed in full and requests compensation for the additional work that the contract did not require. This was the holding by the Civilian Board of Contract Appeals in Kiewit-Turner v. Department of Veterans Affairs, 14-1 BCA P 35705, 2014 WL 4267429, where the Board denied the government’s motion to dismiss Kiewit-Turner’s request for a declaratory judgment.
On August 31, 2010, the Department of Veterans Affairs (VA), awarded a contract to the joint venture Kiewit-Turner (KT) for pre-construction services to build a medical center in Colorado, with an option for construction services. The contract was an integrated design and construct (IDc) contract, which is defined as the Government’s procurement of both pre-construction and optional construction services for a specific project under one contract.
The VA entered into a separate contract with an architect/engineer (A/E) who was responsible for the project’s design and quality. KT was to work with the VA and the A/E as they developed a design for the project, and to notify the VA of any design problems or issues it found as it reviewed the A/E’s work.
About a year after the contract was awarded, KT submitted a firm target price (FTP) proposal of $604,087,179 for the construction. The VA subsequently exercised the construction option of the contract, but the agreement between the parties required that they get the project price at or below the $604 million target price, and included the statement:
[T]he VA shall ensure the A/E … will produce a design that meets their Estimated Construction Cost at Award (ECCA) of $582,840,000.”
Once construction started, KT realized that its costs would be considerably greater than the ECCA amount. KT subsequently requested a final decision from the contracting officer (CO) on whether the VA had breached its obligation to provide a design that could be built for $582,840,000, and, therefore, whether KT had the right to stop work. When the CO denied KT’s requests and directed KT to continue working, KT filed a notice of appeal with the Civilian Board of Contract Appeals (CBCA). KT requested that the Board declare that (1) the VA had a material contractual obligation to provide a design that could be constructed for the ECCA of $582,840,000; (2) the VA breached this obligation; and (3) KT was entitled to suspend performance until the VA provided a design that could be built for the ECCA.
The VA requested the appeal be dismissed, stating that KT was not entitled to declaratory relief. The VA did not challenge the CBCA’s jurisdiction to issue declaratory judgments, but suggested that this was not an appropriate case for rendering such relief.
The parties agreed that the essential case when determining whether declaratory relief is appropriate is Alliant Techsystems, Inc. v. United States,178 F.3d 1260 (Fed. Cir. 1999). In Alliant, the court concluded that boards of contract appeals and the Court of Federal Claims have broad discretion to issue declaratory relief during contract performance, including adjustment or interpretation of contract terms, or other relief arising under or relating to the contract. Thus, declaratory relief in situations involving a “fundamental question of contract interpretation or a special need for early resolution of a legal issue” is appropriate.
Alliant set three criteria for a court or board to consider when evaluating whether declaratory relief is appropriate:
(1) whether the claim involves a live dispute between the parties, (2) whether a declaration will resolve that dispute, and (3) whether the legal remedies available to the parties would be adequate to protect the parties’ interests.
The parties agreed there was a live dispute, but disagreed as to the other two points. The Board found for KT on both of the other criteria and thus denied the VA’s motion to dismiss. With respect to the second point, whether issuance of a declaratory judgment would resolve the dispute, the Board stated:
Respondent [VA] suggests that the request goes beyond the contract by urging that the Board determine whether the respondent was obligated to provide a design that could be constructed for the ECCA of $582,840,000; whether that obligation was material, and whether the respondent had in fact breached that obligation.
… respondent argues that the Board would need to consider evidence of cost evaluations and additional activities not likely to be provided at a hearing seeking declaratory relief, making the issue too involved for resolution via interpretation of the contract. ….
For its part, KT argued that the case presented a fundamental question of interpretation and an urgent need for early resolution of the issue. The Board agreed with KT, concluding:
If appellant [KT] must continue work when it believes it is not obligated to do so, a fundamental issue is implicated in the contract, and in the face of potential cost overruns of hundreds of millions of dollars, it has a special need for early resolution of this issue.
With respect to the third point – whether there was an adequate legal remedy to protect KT’s interests – the VA argued that declaratory judgment was inappropriate because the real issue was money and that per Alliant, a board or court should not issue declaratory judgments on contract interpretation matters when the issue is whether a contractor will later be entitled to additional compensation. In contrast, KT argued that it was critical to resolve these contractual interpretation issues so that KT and its numerous subcontractors knew whether they were required to continue to perform.
The Board found that the facts alleged suggested that KT’s remedies short of a declaratory judgment were not adequate to protect its interests. While the VA stated that KT could rely on the contract’s changes clause to recoup the funds it expended, the Alliant court found that to file a claim under the changes clause for compensation when the work is completed can be an inadequate remedy.
Comment: This is a very nice analysis of the factors a board or court must consider in determining whether a declaratory judgment is appropriate.
This article is published in ConstructionRisk.com Report, Vol. 17, No. 3 (March 2015).
Copyright 2015, ConstructionRisk, LLC