1.     Call Construction, was awarded a $48 million contract by the Navy to design and build housing units. Call's performance was hindered and delayed by unanticipated soil conditions. By...

1.     Call Construction, was awarded a $48 million contract by the Navy to design and build housing units.

Call's performance was hindered and delayed by unanticipated soil conditions.

By the time the Navy accepted the project as complete in March 2007, almost two full years later than the agreed upon completion date, Call had incurred costs in excess of $76 million, leaving the contractor with losses approximating $27 million.

Since the nature of the soil might significantly affect the cost of construction, soil was a topic of attention in the process preceding contract signing.

Before the Navy issued its initial request for proposals -- to which Call responded leading to the contract -- a government-commissioned report found that the soil at the site had a “slight expansion potential.”

“Expansive soil” swells when wet, which can lead to cracks in concrete foundations and other damage. In laying out construction requirements, the request for proposals cited that report as relevant to certain features of the project, such as concrete foundations. The Navy made clear that this pre-request soil report was not to be the last word on soil conditions for purposes of the project.

A later revised request for proposals stated that the specifications in the “soil reconnaissance report” were “for preliminary information only.”

Any resulting contract would require that the contractor conduct its own independent soil investigation, and the revised request incorporated Federal Acquisition Regulation (FAR) 52.236–2, 48 C.F.R. § 52.236–2, which concerns site conditions that differ materially from those disclosed in a contract.

Even before potential bidders had submitted proposals in response to the Navy request, the government had clarified in a publication written in question-and-answer form that any contract would be amended if the contractor's post-award independent investigation turned up soil conditions significantly different from those described in the government's report:

Q15․ This report requires an independent investigation after award․

Should we infer from this that any unforeseen soil conditions or variances from the government's soil report will be dealt with by change order?  Answer: Yes, if there's a major disparity from the government's soil reconnaissance report ....

After receiving the contract award, Call had a laboratory test the soil, and the lab found that the soil's swelling potential was “moderate to high,” not “slight” (as the pre-bid government study had said), and recommended a course of action to account for the newly uncovered condition.

This was promptly reported by Call to the Navy but the government generally insisted on following construction requirements set out in the original request for proposals and subsequent contract.

By mid–2004, Call decided that the cost of waiting for the government to approve the lab’s recommended design changes had become too high and began to implement those changes by over-excavating the soil and replacing it with non-expansive fill despite awareness of the risk of proceeding without a contract modification.  

Discuss the situation:  Does Call have a case? What will it have to prove? What will the government attempt to prove? What clause(s) in the contract will Call rely on?

Expert Answers
Karen P.L. Hardison eNotes educator| Certified Educator

In the spirit of discussion, as your question asks, "Discuss the situation," I'll give my opinion on the proposed case based on the logic of the facts presented, though I'm not qualified to form an opinion on the applicable law.

It may be difficult for Call to claim they have a legitimate case against the Navy because, while knowing that any changes due to differences in soil evaluation would require an amended contract, Call proceeded to act on laboratory recommended changes to soil treatment procedures that were not amended in the contract.

The risky steps that Call took, which may abrogate (abrogate: cancel, invalidate) their legal grounds for establishing a case, were twofold:

  1. they acted without benefit of an amended contract 
  2. they acted in a manner not specified in their existing contract

Three facts relevant to the Navy's defense against a potential case brought by Call are that:

  1. the language used by the Navy specifies "major disparity," although without defining precisely what would constitute a condition of "major" differences,
  2. the conditions of bidding required written amendment to the contract in the case of major disparity between pre- and post-contract soil testing,
  3. the Navy responded to Call's report of a disparity and "insisted" that the terms relating to soil treatment as specified in the original contract be followed.

It is true, however, that the Navy left themselves open to a case being filed against them because (1) they required independent post-contract soil testing yet (2) they failed to respond adequately and in a timely manner to Call's representation of the lab's recommended soil design changes.

Still, the burden seems to fall on Call since they took their own initiative to break the terms of the contractual regulations and to break the terms of their actual contract by not either (1) waiting for the Navy's formal response to the lab recommendations or (2) by not accepting the Navy's insistence on the original terms then adhering strictly to the soil design treatment set forth in their existing contract.