The Federal Circuit reversed many of the findings in favor of the General Contractor on the basis that the Project Manager for the Navy did not have actual authority to approve the changes claimed by the General Contractor. The prime contract incorporated by reference many of the standard clauses from the Federal Aquisition Regulations (FAR)and the Naval Facilities Engineering Command clauses that conferred sole authority to the Navy's Contracting Officer (CO) to approve and issue modifications to the contract.
After execution of the contract but before construction began the parties attended a meeting that the contract required the CO to attend. The CO, however, did not attend and instead the Resident Officer In Charge of Contracts,(ROICC) who was also the Project Manager, attended. At the conference, the Navy issued a detailed set of construction guidelines that designated the ROICC as the person in charge of contract administration and as the designated recipient of all correspondence. The Navy also gave a presentation that stated that no modifications to the contract could occur without written notification from the ROICC. Following a personnel change in the ROICC/PM position, the General Contractor submitted a RFI seeking “documentation of assignment of authority” and the “level of authority” of ROICC/PM, among others. The Navy responded to this RFI with respect as follows:
"Mr. Tim Meland. Project Manager: Serves as the Government Construction Manager on all assigned projects. Responsible for construction management and contract administration on assigned projects while providing quality assurance and technical engineering construction advice. Provides technical and administrative direction to resolve problems encountered during construction. A project manager analyzes and Interprets contract drawings and specifications to determine the extent of Contractors’ responsibility. Prepares and/or coordinates correspondence, submittal reviews, estimates, and contract modifications in support to ensure a satisfactory and timely completion of projects."
During the course of the project the ROICC responded to RFIs and approved deviations from the plans and specifications. At the conclusion of the project, the general contractor submitted a claim for equitable adjustment. The CO found entitlement on many of the changes and the parties proceeded to the Board of Contract Appeals where the General Contractor asserted that the only issue was a determination of quantum. However, the Navy then argued that the ROICC had no authority to approve modifications to the contract. The Board of Contract Appeals found that the ROICC PM directed changes that resulted in costs beyond those required by the contract and that these changes were compensable because the delegation of authority clause in the contract gave him responsibility for construction management and contract administration.
The Federal Circuit reversed, holding that despite the conduct of the Navy, its ROICC PM did not have express authority to approve modifications to the contract. While the General Contractor argued that the authority was implied, the Court rejected this contention stating that where the contract confers authority solely to the CO to modify the contract, there is no way that the same authority could be implied in someone else.
The Federal Circuit sent the case back to the Board of Contract Appeals to consider whether the CO ratified, or adopted, the changes issued by the ROICC when the CO issued a letter finding entitlement. Ratification requires knowledge of material facts involving the unauthorized act and approval of the activity by one with authority. The Navy has taken the position that the CO did not have knowledge of all material facts when he issued the letter finding entitlement.
This case demonstrates how the failure to abide by the express terms of a contract can lead to a patently unfair result.
Matt Hjortsberg
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