Reprinted from American Bar Association and Forum on Construction Law October 2017 Newsletter
A recent decision by the Armed Services Board of Contract Appeals (“ASBCA”) highlights the difficulties contractors face when seeking additional compensation for an alleged mistake in bid. In order to succeed on a “mistake in bid” claim, a contractor not only must prove a mistake occurred, but must prove that the government knew or should have known of the mistake. In Appeal of Zafer Constr. Co., 2017-1 BCA (CCH) P36,776, 2017 ASBCA LEXIS 211 (June 2, 2017), an analysis of which follows below, the contractor argued that the contracting officer knew or should have known of the mistake due to the large discrepancy between the dollar amounts of the bids.
In 2004, Zafer Construction Company (“Zafer”) submitted a design-build proposal for the renovation of an old military hospital campus in Kabul, Afghanistan. Appeal of Zafer, 2017 ASBCA LEXIS 211 at *47. The campus consisted of 16 separate and distinct buildings, including a 400-bed patient care facility, a morgue, a pump station, a sewage plant, and administrative buildings. Id. at *3. The entire campus was designed and constructed by the Soviet Union from 1970-1973, and was in disrepair based on years of war and neglect. Id. at *2-3. The U.S. Government sent a team of architects, engineers and a cost estimator (the “Baker Team”) to the campus to report on the condition of the buildings and infrastructure in order to budget and provide a scope of work for prospective bidders to rehabilitate the campus. Id. at *3-4.
The Baker Team’s report ultimately consisted of a Scope of Work, Technical Requirements, Condition Assessment Report and Photos, a Cost Estimate, a two-phase Design and Construction Schedule, and several site and floor plan sketches (collectively, the “Baker Report”). Id. at *4-5. The Baker Team’s Scope of Work included renovation of all 16 buildings that made up the campus, and stated that the contractor was to “survey the lowest level of each building for areas of standing water.” Id. at *7. The Scope of Work also mentioned “hospital basement levels.” Id.
The FAR’s Site Investigation Clause
The U.S. Government used the Baker Report to prepare its request for proposal (the “Solicitation”). The Solicitation included the FAR’s Site Investigation Clause, which provides in part:
a. The Contractor acknowledges that it has taken steps reasonably necessary to ascertain the nature and location of the work, and that it has investigated and satisfied itself as to the general and local conditions which can affect work or its cost …
(5) The Contractor also acknowledges that it has satisfied itself as to the character, quality, and quantity of surface and subsurface materials or obstacles to be encountered insofar as this information is reasonably ascertainable from an inspection of the site … as well as from the drawings and specifications made a part of the contract. Any failure of the Contractor to take the actions described and acknowledged in this paragraph will not relieve the Contractor from responsibility for estimating properly the difficulty and cost of successfully performing the work, or for proceeding to successfully perform the work without additional expense to the Government.
b. The Government assumes no responsibility for any conclusions or interpretations made by the Contractor based on the information made available by the Government.
Id. at *17-19.
Prior to the bid deadline, the U.S. Government held a site visit that was attended by potential bidders. Id. at *32. During the site visit, the tour went from floor to floor in Building 1, including the basement. Id. at *33. The tour also proceeded through several other buildings and those buildings’ basements, including the Engineering Offices, where the original Soviet’s as-built drawings were hanging on the walls. Id. at *33-34. At a minimum, the tour walked past each of the buildings so the structure was visible to the attendees and lasted approximately 3 hours. Id. at *35.
No Zafer representative attended the site visit. Id. at *37. While there was evidence to suggest that Zafer was not aware of the site visit because it was not noted in the RFP (as would be typical if a site visit was scheduled), the Board found that Zafer had an affirmative obligation to inspect the site per the FAR Site Investigation Clause. Id. There was no evidence that Zafer made any attempt to coordinate its own site visit before it submitted its proposal, despite having a workforce in Kabul at the time. Id. Zafer also made no effort to obtain the Soviet Union’s drawings that were referenced in the Baker Report; the very drawings the Board found were detailed enough to recognize whether a particular building had multiple floors. Id. at *41.
Zafer’s Price Proposal and Claim
Zafer proposed price for the Project was $16,950,202. Id. at *55. This was approximately 28 percent less than the next lowest bidder and 43 percent less than the Baker Team’s Estimate. Id. The U.S. Government prepared an internal memo that commented on Zafer’s price proposal being significantly less than the next lowest bidder and the Baker Team’s estimate, but noted that the difference was likely due to differing overhead costs because the next lowest bidder was using a design subcontractor based in the U.S, and Zafer was using a design subcontractor based abroad. Id. at *56-57. Shortly after that memo, the government sent Zafer an email asking that Zafer verify its price proposal, which Zafer verified by a responding email. Id. at *57.
The U.S. Government ultimately awarded Zafer the contract, with the Scope of Work and Technical Requirements identical to those set forth in the Baker Report. Id. at *58-59. Upon its initial site investigation after contract award, Zafer quickly determined that there was significantly more work area (including basements and additional stories) than was shown in the Baker Report, specifically the sketches that were included. Id. at *60-61. Zafer submitted a claim alleging that the Baker Report’s Scope of Work was inconsistent with the actual scope of work and that Zafer’s miscalculation of the work area was a “mistake in bid” that the U.S. Government should have known was erroneous considering the disparity between Zafer’s price proposal , the next lowest bid, and the Baker Team’s estimate. Id. at *73. The claim was rejected by the contracting officer, and Zafer appealed to the ASBCA.
Zafer Failed to Meet Its Burden of Proof
In order to succeed on a mistake in bid claim, a party must establish, by clear and convincing evidence, that: (i) a mistake in fact occurred prior to the contract award; (ii) the mistake was a clear-cut, clerical or mathematical error or a misreading of the specifications and not a judgmental error; (iii) the government knew or should have known, prior to the award, that a mistake had been made and should have requested bid verification; and (iv) the government did not request a bid verification or its request was inadequate; and (v) the intended bid is established. Id. at *77-78 (citing McClure Elec. Constructors, Inc. v. Dalton, 132 F. 3d 709 (Fed. Cir. 1997)).
In reaching its ultimate conclusion denying Zafer’s claim, the Board held that even assuming that Zafer could meet its burden of proving that the U.S. Government knew or should have known of the mistake and that the bid verification request was inadequate, Zafer could still not prevail on its claim. Id. at *79-80. First, the Board held that Zafer failed to provide any evidence that its bid was actually made in reliance on the Baker Report sketches and Zafer failed to account for certain above-grade stories of the buildings and the basements of most of the buildings. Id. at *80-81. Second, the Board ruled that Zafer failed to prove there was a misreading of the specifications rather than just a judgmental error, noting that a misreading of the specifications “occurs when a contractor fails to correctly interpret various elements of the specifications.” Id. at *83 (citing Liebherr Crane Corp. v. U.S., 810 F. 2d 1153 (Fed. Circ. 1987).
The Board also relied on federal law that does not permit contract reformation when the mistake is a mistake in business judgment rather than a mistake of fact. Id. at *82-83. The Board noted that although the scope of the Baker Report raised several questions, it was the contractor’s duty to inquire further to the extent the contractor needed clarification. Id. at *85. In fact, the Board found that Zafer’s failure to inspect the site or review the Soviet Union’s drawings constituted gross negligence amounting to a mistake in business judgment, not a misreading of the specifications. Id. (citing Giesler v. U.S., 232 F.3d 864 (Fed. Cir. 2000).
The Government Did Not Act Unconscionably
The Board also addressed Zafer’s argument that the U.S. Government acted “unconscionably” by allegedly taking advantage of Zafer and its low bid when it knew or should have known it was in error. The Board held that a disparity in price proposals alone is “insufficient to establish a cognizable claim of unconscionability.” Id. at *91-92 (citing Turner-MAK, 96-1 BCA ¶ 28,208). Moreover, the Board made special note that the U.S. Government specifically requested that Zafer confirm its price proposal and also provided a reasonable explanation as to why the U.S. Government believed there was a disparity in the proposals. Id. at *92.
The Board’s decision reaffirms the diligence a contractor must take to understand plans, specifications, and site conditions when preparing its bid—even when those plans and specifications are in Russian.