Court of Federal Claims Rejects Design-Build Contractor's Differing Site Conditions Claim

This December, the Court of Federal Claims rejected a design-build contractor’s request for compensation for differing site conditions. In Metcalf Const. Co., Inc. v. United States, No.  07-777C, 2011 WL 6145128 (Fed. Cl. Dec. 9, 2011), the U.S. Navy awarded a fixed-price contract to the general contractor to design and construct 212 new family duplex housing units at the Marine Corps Base, located in Kaneohe Bay, Hawaii. The Navy’s initial request for proposals included a government soil investigation report that summarized the surface soil as consisting generally of a “slight expansion potential.”  After being awarded the project, the general contractor hired a geotechnical engineering firm to conduct a subsurface evaluation, which concluded that the soils had a “moderate to high swelling potential.”  Prior to commencement of the work, the general contractor notified the Navy of the soils report, which the Navy refused to treat as a differing site condition. The Navy argued that the general contractor assumed the risk of subsurface conditions and was obligated to prepare a design to accommodate those conditions.  The general contractor expended an additional $4.5 million on removal of expansive soils from the site and backfilling, and submitted a formal claim for differing site conditions.  In formally rejecting the differing site conditions claim, he Navy pointed to the contract documents advising potential contractors of their responsibility to perform engineering and design work, as well as disclaimers on the government’s soil investigation report, which stated that it was for “preliminary information only.”

At trial, the Court of Federal Claims ruled in favor of the Navy, summarizing the test for recovering for a differing site condition as follows: (1) an affirmative contractual representation regarding a site condition; (2) an actual site condition not reasonably foreseeable to the contractor based on information from other sources; (3) reasonable reliance by the contractor on the contractual representation; and (4) an actual site condition that differs materially from the contractual representation.  The Court reasoned that since the government’s soil report did not make an affirmative representation, and in fact explicitly notified the general contractor that it was for bidding purposes only, the general contractor relied unreasonably on the report.  The court held that the contract documents assigned to the contractor the responsibility for geotechnical investigation and foundation designs.  Moreover, since the general contractor was aware of the presence of expansive soils from its experience working in the area, it should have performed, and relied upon, its own studies.

The Court also discussed the contractor’s claim that the Navy breached the duty of good faith and fair dealing, holding that incompetence, inexperience, or the failure to cooperate or accommodate a contractor’s request does not trigger the duty of good faith and fair dealing. Unless the government “specifically targeted” an action to obtain the benefit of the contract, or undertook actions to delay or hamper the performance of the contract, a breach of contract claim for failing to meet the duty of good faith and fair dealing cannot stand. Applying this standard to the facts of the case, the Court held that the government’s requirement of strict adherence to the government’s contractual requirements, instead of deferring to the general contractor’s private sector expertise, was not a breach of good faith and fair dealing, even if the contract was design-build. For these reasons, although the Court granted an extension of time to complete the project, the Court denied the general contractor compensation for a differing site condition.