On Dec. 9, 2014, the United States Civilian Board of Contract Appeals (the Board) issued a decision in Kiewit-Turner v. Department of Veterans Affairs, holding that Kietwit-Turner (KT) was entitled to stop construction on a multimillion-dollar project because the Department of Veterans Affairs (VA) materially breached its agreement to produce a design within its estimated budget.
The Board found that a subsequent contract modification obligated the VA to provide a re-design that could be built for the estimated construction cost at award (ECCA) of $582,840,000.
The Board also determined that the VA materially breached its contract with KT by failing to produce a design that could be built for the ECCA. Specifically, KT was deprived of the benefit of working with a design which would allow construction within the ECCA. KT could not be compensated for this deprivation because the VA did not have adequate funds to pay for the project as designed. Although the VA would suffer some forfeiture, the Board found that the potential forfeiture was limited because the agency retained possession of the land and buildings. There was also little likelihood that the VA would cure its failure as its representatives stated that it would not re-design the project or seek additional funds. Finally, the Board found that the VA’s behavior did not comport with standards of good faith and fair dealing.
In light of the material breach, the Board held that KT was entitled to stop work on the project. The Board acknowledged that KT proceeded with construction during the dispute. However, it held that KT maintained the right to stop work because it performed all activities under “strenuous protest.”
Following this decision KT took the position that it intends to walk away from the project and seek reimbursement of the construction costs it fronted, which are estimated at $1 million. Colorado lawmakers have expressed their desire for the VA and KT to restart negotiations in an attempt to find a pathway forward for completion of the project. Whether KT returns to the project or not, the VA’s apparent unwillingness to salvage the contract with KT before litigation commenced by either pursuing a redesign or additional funding for the project will only further increase construction costs for a project already plagued by budgeting issues.