It is not unusual for federal government construction contractors to have claims arising from the failure of the government’s construction inspectors to catch noncompliant work. The law has been fairly clear on this point: The presence of a government inspector does not typically shift responsibility for the sufficiency of the work from the contractor to the government. While this probably seems fair, what happens if an inspector is present during performance and does not object to nonconforming work? Can the government later insist on strict compliance with the contract? This month’s case, Appeal of Watts Constructors, offers an answer.
The Case
The disputes in this case arose from the U.S. Army Corps of Engineers’ construction of a facility for satellite communications in California. The construction contract was awarded to Watts Constructors in the amount of $38,914,500. Watts subcontracted the entire scope of the electrical work to Helix Electric Inc. The electrical specifications relevant to this dispute provide:
“Wiring Methods: Provide insulated conductors installed in rigid steel conduit, IMC (intermediate metal conduit), rigid nonmetallic conduit, or EMT (electric metallic tube), except where specifically indicated or specified otherwise or required by NFPA 70 to be installed otherwise.”
(NFPA 70 is the National Electrical Code published by the National Fire Protection Association.)
The Corps had an “institutional preference” for using rigid conduit to run electric power cable in buildings because it believed that conduit-installed power lines would last longer. Helix apparently knew of the Corps’ desire but had its own preference for a less expensive power cabling, called flexible metal-clad cable. Despite its concerns that the Corps might not permit the use of MC cable, Helix identified portions of the contract specifications that it believed permitted the use of this type of cable throughout the buildings.
For example, Part 2 of the “Interior Distribution System” section of the electrical portion of the contract’s specifications is titled “Products” and lists required specifications for several dozen identified electrical distribution products. One of the products listed is MC, and the applicable subsection states: “Metal-Clad Cable, UL 1569, NFPA 70, Type MC cable.” Additionally, in Part 3 of the contract, labeled “Execution,” specifications in Section 3.1, “Installation,” include installation instructions for various items, including MC.
The drawings, however, refer only to conduit. Moreover, one legend referencing wiring clearly depicts that conduit was to be used throughout.
THE CORPS HAD BEEN ON-SITE AND INSPECTED THE WIRING INSTALLATION BEFORE THE WALLS WERE ENCLOSED AND MADE NO OBJECTION TO THE USE OF MC.
Helix largely completed three of the buildings, accounting for approximately 60 percent of the wiring, with MC before the Corps directed Helix to stop.
The Corps had been on-site and inspected the wiring installation before the walls were enclosed and made no objection to the use of MC. However, the Corps representative who had been conducting the inspections was not primarily performing a quality-assurance function for electrical work but was focused on other disciplines. Once the Corps’ QA electrical engineer inspected the job and discovered the MC cable, the Corps directed Helix to rip out and replace all the MC with conduit. Helix complied. This entailed demolishing walls already placed.
Helix submitted a certified claim of $415,120 to Watts, and Watts passed the claim through to the Corps. When the contracting officer denied the claim, Helix, through Watts, appealed to the Armed Services Board of Contract Appeals.
The Appeal
At trial, Helix’s project manager conceded that the legend applied to all electrical lines, that nothing in the drawings indicated the use of MC as acceptable, and that the drawings required conduit. However, Helix argued that a portion of the drawings allowed for MC because one drawing sheet depicted a solid line connecting outlets, and Helix believed this allowed for “generic” conduit. Additionally, Helix introduced evidence that one of the Corps’ QA representatives who had conducted inspections believed that the specifications allowed for MC.
The board concluded that MC did not qualify as conduit as referenced in the contract. It did so by applying well-established contract interpretations, namely, that contracts should be read as a whole to harmonize and give meaning to every word, leaving no word superfluous. Construing the contract as Helix requested would render the specific references to “conduit” meaningless.
The board concluded that MC did not qualify as conduit as referenced in the contract.
Helix also argued because of the government’s acquiescence to its use of MC and the government inspectors’ beliefs that MC was permitted, the Corps was required to interpret the contract as being “in harmony.”
The board noted that the failure of Corps’ inspectors to halt the use of MC early in the contract —before the closure of walls and near completion of the wiring work — was “troubling.” Nevertheless, the board found that it was Watts’ responsibility to comply with the terms of the contract. Moreover, absent affirmative misconduct (not alleged or proved in this case), the Corps’ failure to enforce the terms of a contract did not prevent it from later enforcing those terms. Finally, the board found that the Corps did not waive compliance with the strict terms of the contract and that it was entitled to later reimpose any requirements on the contractor.
The Analysis
The board decision makes no reference of whether Helix argued that the Corps’ actions constituted economic waste. When work of this nature is required to be ripped out and replaced to achieve strict compliance with the specifications, contractors are at times successful in proving that there was a more cost-effective way to resolve the dispute. However, because the contractor took a gamble on its selection of materials, installing more economical cable as opposed to the more rigid conduit, economic waste would have been difficult to prove.
Additionally, it is doubtful the board would have been sympathetic to that argument, since it noted that Helix simply “saw what it wished to see” when it reviewed the plans and specifications and used MC instead of the required rigid conduit. While the court noted it would have been “far better” had the Corps’ inspectors caught the issue, it indicated that their inaction did not change the meaning of the contract.
Some interesting takeaways from this decision include the importance of using the request for information process as a matter of course to clarify the contract if an ambiguity exists. Additionally, most contracts have order of precedence clauses, meaning that to the extent that there appears to be a conflict, one trumps the other — for example, detailed specifications usually take priority over boilerplates and drawings.
Finally, even though government personnel observe noncompliant work without objection, the government always has the right to come back and insist on strict compliance with the contract.
This article first appeared in the October 2020 issue of Civil Engineering.
