Sometimes, you “do” bad things. Sometimes, you “look like” you do horrible things. Take a look at the differences between the bad boy Jack and my daughter, who “looks like” she’s up doing nothing wrong. In the field of construction, both could land the way of trouble, which could include the possibility of being terminated for non-payment of the contract.
Appeals of Industrial Consultants, Inc. d/b/a W. Fortune & Company, ASBCA No. 59622 (2017), was the construction of the HVAC system in the facility located in New Hampshire. The Board found that the contractor had been properly dismissed for default when: (1) it repeatedly insisted on altering the project’s design; (2) it furnished the documents invariably late and sometimes did not even submit them; (3) it failed to respond to certain communication about design changes and rejects or design changes; and (4) it did not submit a safety plan.
The facts. Following award of the contract to the winning bidder, there were immediate concerns about the design. The president of the contractor believed there was a flaw in the design and started offering suggestions for design changes. The contractor responded to several RFI’s to which the government replied. The contractor was slow in submitting submissions, and in many cases didn’t provide submissions. The contracting officer issued an official notice to the contractor, requesting the contractor to correct its shortcomings. Many communications have been exchanged back and back and forth between the two parties, which all showed how the contractor is adamant and aggressive. The final outcome is that the contracting officer sent three cure notices and then was able to issue a termination notice for insolvency.
The Decision. The Board concluded that the contractor was unable to complete their work in accordance with FAR 52.233-1 (Disputes) (June 2008), which stipulates that “the “contractor shall proceed diligently with the performance of this contract, pending final resolution of any request for relief, claim, appeal, or action arising under the contract, and comply with any decision of the contracting officer.” In determining the merits of the matter, the Board concluded:
The government is responsible for proving that the contractor] was not performing efficiently and did not obtain approval for its submissions. Inability to complete the work when there is the course of a dispute can be grounds to terminate the contract in default. In this case it is not disputed that the contractor failed to finish the work in time, did not proceed with the work when the Corps denied its proposal to make modifications to the project and also failed to submit certain documents and failed to obtain approval for other submissions. The government has presented an initial case for default termination. The contractor] must, therefore, show that the non-performance was culpable.
The Board determined that the contractor’s inability to perform its duties was not a matter of excuses, since it had fundamentally misunderstood its duty as a contractor for the project.
Leçons learned. Ultimately, the Board found it was “government contractors must perform the contracts they execute and cannot require the government to rewrite the contract so that they can build some other project they like better.” In this instance, the contractor had a disagreement with its HVAC’s design and informed the government of his concerns. But, ultimately, the government decided to continue in the same way. In the end, the contractor had only one option: keep building the project in accordance with what it was been contracted to complete the project. The contractor did not have the option of choosing to be a bad actor in “dragging its feet” and not performing this, which ultimately resulted in the termination of default.
How can a homebuilder get out of the trap set by Damico’s Court In Damico? One possible solution is that the homebuilder adds to every subcontract an arbitration clause which permits a buyer of a home to seek an arbitration with a subcontractor, as well to join in an arbitration with the builder. Another possibility is to follow the well-known legal principle known as KISS (Keep It Simple Stupid.) Arbitration clauses can be written by drafters who prefer not to make the contract basic, such as beyond the basic language required to ensure that arbitration is applicable to any dispute and use those rules of the national arbitration organization apply and make sure to not include any procedural obstacles that a judge could be able to interpret as unfair in any way to the customer. Of course, you must make certain that an arbitrator and not an individual judge, can decide the validity of a clause or not.
There are many other lessons to be gleaned from Damico and homebuilders are likely to be facing a fresh round of criticisms against their contracts when the courts and lawyers begin to apply the same principles to not just the homebuilder business as well as general consumer transactions.