At some point, most contractors disagree with a federal customer about what is required under what turns out to be a poorly worded contract. Depending on how insistent the purchasing agency is on its view of the agreement, a contractor can be stuck shouldering significantly higher costs than anticipated without a corresponding increase in contract price. Thanks to a recent decision by the United States Court of Appeals for the Federal Circuit, contractors now have more precedent for demanding an equitable adjustment when the Government insists on its more expensive reading of an ambiguous contract term.
In States Roofing Corp. v. Winter, States Roofing had been hired by the Navy to repair and waterproof the roof of a large building. The contractor had planned to use specialized paint to perform the required waterproofing, which was a common practice in the industry, and calculated its fixed-price bid accordingly. After performance commenced, the Navy objected to use of the paint on grounds that the contract called for States Roofing to waterproof the roof by attaching layers of thin membranes called flashing. That method of waterproofing had been used to protect most of the roof; the rest had been waterproofed with paint. States Roofing eventually agreed to use flashing and requested an equitable adjustment to cover its increased costs.The Navy refused on grounds that the contract had always called for flashing.
States Roofing appealed, arguing that it was reasonable to understand the contract as calling for use of either waterproofing paint or flashing materials. Most notably, the contract did not include specifications for waterproofing the roof. Other language and drawings in the contract left unclear whether either method of waterproofing was required. States Roofing argued that when such ambiguities arise in a contract, they should be construed against the contract's maker-here, the Government-under the traditional rule of contra proferentem.
At the trial stage, the Armed Services Board of Contract Appeals (ASBCA) agreed only in part. It concluded after review of the contract materials that it was reasonable for States Roofing to believe it could paint the areas of the roof that had been painted previously. According to the ASBCA, reading the contract to allow for painting of the entire roof, however, was outside the "zone of reasonableness."
On appeal, the Court of Federal Claims disagreed with the ASBCA, instead concluding that the contract reasonably could be construed to permit either method of waterproofing. The court endorsed application of contra proferentem: doubts about the method of waterproofing were resolved in States Roofing's favor. In the critical passage, the court wrote:
In determining whether States Roofing's interpretation was reasonable, as to whether paint or flashing material was required for the parapet walls, we need not conclude that it was the only possible reasonable interpretation, or even the best one. See United Pac. Ins. Co. v. United States, 497 F.2d 1402, 1407 (Ct. Cl. 1974) ("[I]t is well established that if a drawing or specification is ambiguous and the contractor follows an interpretation that is reasonable, this interpretation will prevail over one advanced by the Government, even though the Government's interpretation may be a more reasonable one, since the Government drafted the contract."); City Elec., ASBCA No. 24565, 82-2 BCA §16,057 ("A contractor's reasonable interpretation need not be the best interpretation. It need only be within the zone of reasonableness.").
The Navy was ordered to equitably adjust the contract to reflect the additional costs of flashing the entire roof.
For contractors dealing with a contracting officer's technical representative insisting on an unnecessarily expensive means of performing, States Roofing is welcome news. The decision provides grounds for requiring the Government to pay for the privilege of resolving ambiguities in its favor after the contract has been formed. If the Government writes a contract susceptible of two or more understandings, it will be deemed a constructive change for the Government to insist on only one of them.
Contractors should be wary of treating States Roofing as a guaranteed ticket to equitable adjustments, however. When the defects in a solicitation are patent rather than latent, contractors will continue to bear the burden of asking the Government what it wants. Indeed, Judge Lourie dissented in States Roofing on this ground, concluding that the problems with the Navy's contract were too obvious to have been ignored when formulating a proposal. With this in mind, contractors must continue to review solicitations carefully and clarify any ambiguities or inconsistencies before submitting their offers.
*District of Columbia Bar (Pending, supervised by principals of the firm).