Court of Federal Claims Holds Contract Term Prescribing Adjustment for Variances Does Not Bar Claim for Breach of Contract Based on Negligent Estimates

Ravens Group, Inc. v. United States
2013 U.S. Claims LEXIS 979 (Fed. Cl. 2013)

This action arose out of a contractor’s claim for additional compensation for unanticipated work. The U.S. Army (the “Government”) solicited private contractors to provide the maintenance and repair services for General and Flag Officers Quarters (“GFOQ”) at Fort Myers, Virginia and Fort McNair, Washington D.C. GFOQ is military housing specifically designated for senior officers of the military and their families. Traditionally, the Government used “in-house” personnel to respond to the majority of the maintenance and repair service calls at GFOQ housing. The solicitation from private contractors marked a new initiative in which the service calls at these two bases would be handled exclusively by a private contractor.

Because it was a new initiative, the Government sought the assistance of The Ravens Group, Inc. (“TRG”) to help draft the performance work statement (the “PWS”). TRG was one of the private contractors that filled in when the in-house government personnel were unavailable or unable to perform the required services. In developing the PWS, TRG asked the Government for access to military service call records for GFOQ housing at both bases. TRG wanted historical services data to prepare the PWS as well as its own bid proposal for the work. In recognition of the need for some number to use in preparing the PWS, and without locating historical records, the Government decided that they “would come up with a number as far as service calls to be performed.” Accordingly, during pre-contract discussions, the Government orally informed TRG that it could expect fifty (50) monthly service calls and one (1) or two (2) emergency calls per year.

TRG relied on this estimate in preparing its bid of $15,000 per month for service calls under the fixed price portion of the contract and was subsequently awarded the contract. Shortly after the contract was awarded, however, TRG began responding to over ninety (90) service calls and ten (10) emergency calls per month. Because of the severe underestimation of the workload, TRG proposed an increase in the fixed price for service calls from $15,000 to $102,675 per month. After the parties failed to reach an agreement TRG submitted a claim and request for a contracting officer’s (“CO’s”) final decision. The CO, however, only agreed to pay approximately $55,000 to TRG. TRG filed suit in the Federal Court of Claims alleging, among other claims, that because the government provided it misleading estimates and breached the implied duty of good faith and fair dealing, TRG was entitled to damages.

The Government moved for summary judgment and argued, in part, that TRG was barred from recovering any damages for breach of contract because the contract contained a variance and equitable adjustment provision, which provided a formula which TRG specified the adjustments to compensation to be made for hours expended beyond the coverage of the monthly $15,000 fixed price for service calls. The Court disagreed, and found “that the contract’s variance and equitable adjustment clause served only to protect the [G]overnment from unforeseen circumstances at the time of contract formation. It did not, however, excuse the [G]overnment if it provided a negligent or misleading estimate to [TRG].” The Court reasoned that the Government could not provide inaccurate estimates and then be allowed to bar an equitable recovery by arguing that the resulting damages fall within the contract’s variance and equitable adjustment provision. The court held that there was a genuine issue as to whether the estimates supplied pre-contract were negligently made. Moreover, the Court found that “[t]he Federal Circuit has made plain…that such provisions for equitable adjustments do not necessarily bar other measures of damages in cases where the court finds a breach.” Therefore, the Court held that the Government could not successfully use the contract’s variance and equitable adjustment provision to preclude TRG from the opportunity to present the merits of its negligent estimate – breach of contract case. Accordingly, the Court concluded that summary judgment on this ground was not proper.

Jeffery R. Mullen

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