Engineering Firm Wins Federal Contract Dispute Against Feds

Meridian Engineering Company (MEC), an engineering and construction company, contracted with the United States Corps of Engineers (CoE) to build a flood control project in Nogales, Arizona, near the Mexican Border.  MEC brought legal action against the CoE for breach of contract, breach of duty of good faith and fair dealing, and violation of the Contract Disputes Act (CDA).  The U.S. Court of Federal Claims (COFC) found in favor of the U.S. government on the contract dispute claims, but then found MEC was still entitled to equitable adjustment.  This decision was appealed to the U.S. Court of Appeals, which remanded the case back to the COFC to resolve Meridian’s flood-events claim and unpaid contract-quantities claim.

Administrative Procedural History

In January, 2009, MEC began construction of a flood control project  in Nogales, Arizona encountering major problems just two months later.  Subsurface flows and soil issues caused stability problems for the construction project.  The CoE responded by issuing additional requests for proposals and modifications, which included increasing the project’s scope, duration, as well as adding an access ramp, increasing the price of the contract and causing further delays.  The project worsened by damages caused by flooding at the work site.  After multiple delays and structural failures, the CoE terminated the project in September 2009.

Disagreement over the costs of the project followed its termination.  The CoE rejected MEC's final payment request in August 2009.  Meridian submitted a final request for equitable adjustments (REA) of $899,600.88 for flood events in 2008 which contained fourteen
counts of requests for equitable adjustment. The Corps acknowledged receipt of the REA but did not issue a decision on it.  Meridian responded by converting the REA into a certified claim in January 2011.  The CoE again didn’t decide on the claim, leading Meridian to file suit against the U.S. for a right to relief under the CDA.

Judicial History

Trials were held by the U.S. Court of Federal Claims on the dispute between Meridian and the Corps. In 2014, COFC considered the issue of liability and in 2016 the amount of damages warranted.  The trial in 2016 awarded damages to Meridian in the amount of $983,771.10 for equitable adjustment and interest that accrued from January 7, 2014 until date of payment.   Meridian appealed the decision for damages to the Federal Circuit and argued the accrual date for interest was incorrect.  The Federal Circuit vacated and remanded the court’s findings of the case in 2014 with respect to the liability of the flood events and unpaid contract-quantities claims.   It reversed and remanded the interest award from the trial in 2016 as well.  The issues of liability and damages, and the interest calculation were then remanded to the Court of Federal Claims to decide. 

Arguments

Meridian argued it was owed over $921,000 plus interest for its flood-related damages.  However, the U.S. government stated the claim should be barred.  The accord and satisfaction dispute consisted of two elements:  whether there were valid releases from modifications, and whether the parties came to a meeting of the minds on the scope of the releases.  Meridian argued the releases were specific to costs associated with new access ramps and survey drawing delays.  The U.S. government however interpreted the releases to include all flood-event damage claims, past and future.  It stated the project delays caused Meridian to work during the monsoon season and flooding.  The Court however noted some of the delays were caused by modifications requested by the U.S. government.  The Court concluded the government was liable for flood-event damages.

The U.S. Court of Federal Claims held the defense of accord and satisfaction was barred because there was no meeting of the minds between the parties as to the flood-event damages' claim.  The court cited Cmty. Heating & Plumbing Co. v. Kelso, 987 F.2d 1575 (Fed. Cir. 1993) to show that courts can refuse to bar a claim “based upon the defense of accord and satisfaction where the parties continue to consider the claim after execution of a release.”  The court concluded there was no meeting of the minds because the flood-damages claim continued to be negotiated after the releases were reached by the parties

Assumption of Risk

The U.S. government argued Meridian’s claim for flood-damages failed because the contract assigned the risk of flooding to Meridian.  However, the government delayed the project by not providing timely survey files and requesting adjustments to the project. The delays caused by the U.S. government resulted in the contractor working during the flood-prone season.  The court concluded the government cannot claim Meridian assumed the risk.

U.S. Court of Federal Claims Holding

On remand, t United States Court of Federal Claims held Meridian was entitled to total damages of $1,857,374.79 and interest from January 2011 until the date of the payment.  If you find yourself in a similar situation as Meridian, do the right thing and acquire representation that has expertise in government contracts.  Call Whitcomb Selinsky PC at (866) 476-4558.