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Kent Holland, J.D.
ConstructionRisk, LLC

Where a design-build contractor under a federal government contract was terminated for default for failure to perform work consistent with the project schedule, it was default terminated. The contractor filed suit against the government for wrongful termination, arguing that the government breached its contract by, among other things, failing to timely provide design intent drawings. It also argued that it was delayed due to late issuance of permits and authorizations by the fire marshal and local authorities. The contract required the contractor to notify the government, in writing, of any excusable delays within ten (10) days after the contractor learned of the delay. Because the contractor in this case failed to provide the required ten-day notice to the government that it was encountering excusable delay, the court found that the contractor could not later argue that its delay was excusable. The termination for default was, therefore, found to be appropriate. The court explained that although notice provisions in government contracts are generally liberally construed, “The requirement is not meaningless, however, because giving notice within ten days allows an investigation contemporaneous with the events. In this case, the record does not reflect the government’s independent knowledge of the problems facing plaintiff or that notice was constructively provided by other means. In sum, defendant was within its rights to insist on timely notice, and notice was not provided. We hold that plaintiff cannot now assert delay as a defense to non-performance.” Lake Charles XXC, LLC . United States, 118 Fed.Cl. 717 (2014).

The contract listed six steps for the design and construction of the more specific interior elements for the office building that was to be designed, constructed, and then leased to the Government. These included: “(1) the government would generate initial design intent drawings; (2) the government would finalize the design intent drawings and provide them to the lessor (contractor); [and] (3) the lessor [contractor] would create final working/construction drawings of the interior improvements in conformance with the design intent drawings.”

The design intent drawings (“DIDs”) were to be “fully-dimensioned drawings of the leased space” and included information regarding finish elements such as furniture locations, telephone and data outlet locations, specifications for electrical and HVAC loads, and other “finish/color/signage selections.”

The contract stated that the parties would incorporate the final DIDs into the contract by a Supplemental Lease Agreement (“SLA”). Id. at 3 (paragraphs 13 and 14). This would begin a 180–day clock for completion of construction and delivery of the building to GSA/SSA. Id.

The government issued the DID documents, but for reasons not explained in the decision, those documents were not incorporated into the contract. Several months later, the government issued a notice to proceed to the contractor. When the contractor failed to demonstrate progress with the work, the government met with the contractor and suggested the possibility of a termination for convenience. The contractor declined that offer and instead proposed a new schedule for completion. The new schedule agreement also called for the contractor to obtain all necessary city construction permits.

During subsequent site visits the GSA project manager observed that work was not progressing and the GSA “warned plaintiff that it was in danger of violating the default delivery clause” and advised that GSA was considering terminating plaintiff for default. Plaintiff was instructed to “present, in writing, any facts bearing on the question to Nancy Lopez, Contracting Officer, … within 10 days after receipt of this notice. Failure to present any excuses within this time may be considered as an admission that none exist.”

Despite reassurances from the contractor that it was obtaining permits and progressing with the work, the work did not, as observed by the GSA, progress consistent with the new agreed upon schedule. The GSA sent a second show cause notice to the contractor stating that GSA’s site inspection,

“revealed ‘no completed work’ at the site and that ‘no letter of delay or revised dates [had been] received from Lake Charles.’ Def.’s App. 293. The letter noted that Lake Charles had missed the delivery date and failed to respond to several inquiries made by the CO in January 2008 after plaintiff’s promise to send an updated schedule. The letter informed [contractor] that GSA was considering terminating the contract for default and instructed Lake Charles to submit in writing within 10 days any facts bearing on the question of whether the delays were plaintiff’s fault.”

Court’s Reasoning in Finding in Favor of Government

Because the contractor executed a contract change agreeing to perform the work with a later completion date, it was bound by that date. The fact that the government issued the notice to proceed before incorporating the DID documents into the contract was of no consequence, and provided no excuse to the contractor, since the contractor had subsequent to that agreed to the contract modification.

The government challenged the contractor’s delay claims as unfounded because the contractor failed to notify the CO within 10 days of when they commenced and because plaintiff had not alleged how the delays, even assuming they were not contractor’s fault, affected the critical path of construction, meaning that they were not the cause of plaintiff’s failure to complete the project in time. The adoption of the contract change was, according to the court, “in effect, a new notice to proceed, and one which ignored defendant’s asserted failure to incorporate the DIDs into a SLA and approve plaintiff’s construction drawings. Any conditions precedent contemplated under the original schedule were superseded by SLA No. 2, were no longer in force, and cannot constitute an excuse for plaintiff’s failure to give notice of the alleged delay.”

Regardless of what excuses the contractor thinks it may have had for completing consistent with the agreed upon schedule, the contractor failed to provide the required 10-day notice. As stated by the court,

“Plaintiff does not assert that it provided written notice within 10 days after the beginning of the delay. Instead, it argues that, because GSA did not issue a notice to proceed after incorporation of DIDs by SLA, it had no duty to perform, and thus any delay is the government’s fault.”

The court further explained:

“In order for delay to be excused, the contract’s delay clause requires that ‘the Lessor within 10 days from the beginning of any such delay (unless extended in writing by the Contracting Officer) provide[ ] notice to the Contracting Officer of the causes of delay.’ This means that, if the contractor experiences delay not of its own making, it must provide notice to the CO within 10 days of experiencing the delay or the contractor risks being held responsible for that delay.” ….

“We recognize that the general rule in applying contract notice provisions is that they should be applied liberally. See generally Hoel–Steffen Constr. Co. v. United States, 197 Ct.Cl. 561, 573, 456 F.2d 760 (1972) (holding that the notice provision of a contract-adjustment clause not be applied “too technically and illiberally where the Government is quite aware of the operative facts”) (citing Copco Steel & Eng’g Co. v. United States, 169 Ct.Cl. 601, 616, 341 F.2d 590 (1965)). The requirement is not meaningless, however, because giving notice within ten days allows an investigation contemporaneous with the events. This comports with the Court of Claim’s instruction in Hoel–Steffen, where the court declined to construe the contract-adjustment clauses’ notice provision strictly against the contractor when the agency was aware of the circumstances due to a request from the contractor for a time-extension under a different contract provision. Id.; see also R.P. Wallace, 63 Fed.Cl. at 417–18 (rejecting the *727 government’s late notice argument because the contractor did not reasonably know of the cause of the delay until seven days before it provided the Navy with notice). In this case, the record does not reflect the government’s independent knowledge of the problems facing plaintiff or that notice was constructively provided by other means.

In sum, defendant was within its rights to insist on timely notice, and notice was not provided. We hold that plaintiff cannot now assert delay as a defense to non-performance.”

Comment: This case demonstrates the importance of adhering to contract notice requirements. Contractors should exercise caution to provide notice to the government of changes within the time period required buy the contract. As explained by the court, although there may be exceptions to strict enforcement of notice requirements, these requirements are important and courts can and will enforce them.

 

About the author: Article written by J. Kent Holland, Jr.,  a construction lawyer located in Tysons Corner, Virginia,  with a national practice (formerly with Wickwire Gavin, P.C. and now with Construction Risk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk.com Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk.com Report, Vol. 17, No. 4 (June/July 2015).

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