A recent decision by the Armed Services Board of Contract Appeals reminds us of the importance of obtaining commitments from your key subcontractors after award. In CDM Constructors, Inc. (August 20, 2018), the ASBCA dismissed on summary judgment a construction contractor’s claim for increased costs arising out of a contract for the construction of dissolved oxygen injection systems at two locations in the Savannah River.
On August 14, 2015, following award of the contract, the Government notified the successful contractor that a protest had been filed and that the contract had been stayed. On October 14, 2015 the protest was denied and, on October 18, the Government lifted the suspension. One week later, the Government issued the notice to proceed. On December 21, 2015, the contractor notified the Government that its contemplated marine subcontractor had withdrawn its bid as a consequence of the bid delay and that as a result the contractor had incurred increased costs in the amount of $3,157,098.58.
Following denial of the claim, the contractor filed an appeal with the ASBCA. The Government moved for summary judgment on two grounds: (i) there was no evidence that a suspension of approximately 60 days to resolve a bid protest was anything but reasonable, and (ii) there was no causal connection between the suspension and the contractor’s increased costs.
With respect to the first ground, the Board noted that, although the contractor had not offered evidence from which the Board could conclude the suspension was unreasonable, the Board must still consider the contractor’s claim under the Protest after Award clause because there was no requirement that the suspension be found unreasonable. Rather, the Board held that under the Protest after Award clause, the issue that governs the contractor’s ability to recover on its claim is the issue of causation.
With respect to causation, the Board found dispositive two undisputed facts: first, the prospective marine subcontractor had stopped soliciting work two weeks before the contract was stayed, and second, the contractor did not try to contact the prospective marine subcontractor after award to either enter into a subcontract, or to ask it to extend its proposal beyond the August 16, 2015 expiration date. The Board stated that the contractor “made no effort in the [marine contractor’s] direction before the suspension or during the suspension. Even after the suspension was lifted and despite a number of signals coming from [the marine subcontractor] indicating its likely unavailability due to its workload, [the contractor] displayed no sense of urgency with respect to [the marine subcontractor].”
The Board further stated “[The contractor’s] manifest failure to act to secure [the marine subcontractor] is not in dispute, and in combination with the amount of work on [the marine subcontractor’s] plate by July 31, 2015, is the primary, if not the sole, cause of [the marine subcontractor’s] unavailability to perform work on the DO project.” The Board concluded this foreclosed the possibility that the prime contractor could prove that the marine subcontractor’s unavailability was caused by the protest suspension.
The teaching lesson from this decision to that following award, a prime contractor should promptly execute subcontracts with its key subcontractors. Failure to do so jeopardizes the ability of the prime contractor to either seek an equitable adjustment from the government in circumstances similar to those presented in this case, or hold the subcontractor responsible for failing to honor its bid.