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Cherokee General Corp. Challenges Termination of Contract by USACE

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In September 2016, Cherokee General Corporation (CGC) entered into a contract with the United States Army Corps of Engineers (USACE) for the repair and reconstruction of a military airstrip. USACE terminated the contract in June 2017 for a lack of confidence in CGC’s ability to complete the work on time. CGC challenged the termination. It asserted delays in performance were caused due to constructive changes to the contract and/or differing site conditions or were excusable because they were the result of unforeseen circumstances beyond its control. It requested the default termination be converted to one of convenience. The U.S. Court of Federal Claims denied CGC’s motion for summary judgment.

Background

In December 2017, CGC alleged the default termination was improper and sought payment for work performed and damages. It asserted that delays in the project were excusable due to the “design changes imposed by USACE, unexpected soil conditions, severe weather conditions, and other conditions not within CGC’s control.” In 2018, CGC requested the court convert the termination for default to a termination for convenience.

In 2018, Contracting Officer Susan Newby issued a Final Decision denying CGC’s claim in its entirety. CGC filed an amended complaint with the U.S. Court of Federal Claims. It added a claim of damages for USACE’s “failure to modify the contract and compensate CGC for the increased costs and delays caused by differing site conditions, design changes, and project delays.” Ms. Newby issued a final decision demanding CGC reimburse USACE for its re-procurement and related costs, and pay liquidated damages and repair costs. CGC filed a second amended complaint where it requested the Court reject re-procurement costs or other payments to CGC. IN 2019, CGC filed an unopposed motion to file a third amended complaint requesting a reduced amount of damages for CGC.

In June 2019, the U.S. Department of Justice filed counterclaims for the following: reimbursement of re-procurement costs incurred to hire a new contractor; increased costs for replacement contract; repairs to the project site due to CGC’s over-excavation and placement of improper fill material; and liquidated damages for delay of completion of contract. CGC asserted the “termination for default was arbitrary, capricious, and contrary to law. The U.S. government filed a request for partial summary judgment.

Contract Completion Date

CGC asserted the default termination was improper because there was no formal contract completion date (CCD) for which the progress of the project could be measured. The government disagreed, stating the completion date in the unpriced change order was July 15, 2017. CGC countered, the date was “merely a “milestone” USACE set for completion of the runway and turnaround.” The court found it unnecessary to determine whether this date was the set date for completion of performance. It noted McDonnell Douglas Corp. v. United States (McDonnell Douglas XIV), 567 F.3d 1340, 1347–51 (Fed. Cir. 2009) states, “a termination for failure to make progress may still be justified based on the totality of the circumstances.”

CO’s Alleged Failure to Engage in Reasoned Decision Making

CGC argued for summary judgment because the contracting officer: did not consider extensions of time CGC was allegedly entitled; relied on inaccurate information about the work remaining to be performed; did not conduct a scheduling analysis to determine CGC’s ability to perform the contract with the remaining time; and not consider the time it would take a follow-on contractor to perform the work. The government disagreed with CGC’s allegations, noting the CO was regularly informed of project delays and she relied on information that led her to believe a default termination was warranted.

The U.S. Court of Federal Claims found CGC’s focus in the CO’s decision-making process misplaced. It noted the trial court may consider other factors relied upon by courts and contract boards. This includes comparison of percentage of work completed and remaining under contract, contractor’s failure to meet milestones, and contractor’s performance history. The court noted Emiabata v. United States, 139 Fed. Cl. 418, 422 (2018) states the court “is not limited to the grounds for default enumerated in the contracting officer’s letter.” The U.S. Court of Federal Claims held CGC was not entitled to summary judgment.

Factual Disputes Precluding Summary Judgment

The U.S. Court of Federal Claims reviewed the issue de novo and applied the objective standard to find facts in dispute regarding the extent delays hampered CGC’s progress were excusable. The court gives multiple examples including CGC’s contention that USACE constructively changed the contract when it required CGC to build a runway “crowned” at the centerline with a three-way slope instead of a two-way cross-slope runway. CGC alleged this modification led to delays and an increase in costs. The government argued the contract required the use of a crown in the runway design. The court held that disputes centered on technical issues “are not well suited to resolution on a paper record through summary judgment.

Government’s Motion

The government filed a cross-motion for summary judgment. It argued it met its burden showing CGC was in default, shifting the burden to CGC to prove excusable delay. It argued it was entitled to summary judgment because CGC committed material breach of contract justifying the default termination. The court agreed with summary judgment for the government to CGC’s claim that the presence of wet soils at the site constituted a “differing site condition.” It granted summary judgment because CGC failed to provide evidence that could establish the elements of a different site condition.

To prevail a Type I differing site condition, a contractor must establish “a reasonable contractor reading the contract documents as a whole would interpret them as making a representation as to the site conditions.” The case Comtrol, Inc. v. United States, 294 F.3d 1357, 1363 (Fed. Cir. 2002) held that “to establish a Type I different site condition, the contractual representation must be an affirmative one.” The court noted CGC did not identify any affirmative representation in the contract documents regarding the condition of the soils in the airstrip. The court granted the government a Title II differing site condition as well due to CGC’s claim there were unknown physical conditions at the site that differed materially from those ordinarily encountered. The U.S. Court of Federal Claims noted CGC did not present any evidence it could not have “reasonably anticipated that there would be a significant amount of wet soils at the site shortly after the winter season…”

Summary Judgment regarding Damages

The government sought summary judgment regarding CGC’s entitlement to damages “should the Court agree that the default termination was improper.” The government argued if the Court were to convert the termination into one for convenience, CGC would be required to make a termination settlement proposal to the contracting officer to be reimbursed for its costs.” The Court agreed with the government. It stated “that if the contract is terminated for convenience, the contractor must submit a termination settlement proposal to the CO to be reimbursed for its costs.” The U.S. Court of Federal Claims granted summary judgment to the government.

Conclusion

The United States Court of Federal Claims denied CGC’s motion for summary judgement.

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About the AuthorWhitcomb, Selinsky, PC

Whitcomb, Selinsky, PC is a full service law firm serving clients’ diverse legal needs. Our focus is in helping people in their interactions with federal, state and local governments.

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