E. Coast Repair & Fabrication, LLC v. United States

• Decision Date: 09 August 2016
• Docket Number: Case No. 2:14cv606
• Citation: 199 F.Supp.3d 1006
• Court: U.S. District Court — Eastern District of Virginia
• Parties: EAST COAST REPAIR & FABRICATION, LLC, Plaintiff, v. UNITED STATES of America, Through the Department of the Navy, and Its Activity, The Norfolk Ship Support Activity, Defendant.

199 F.Supp.3d 1006

EAST COAST REPAIR & FABRICATION, LLC, Plaintiff,

v.UNITED STATES of America, Through the Department of the Navy, and Its Activity, The Norfolk Ship Support Activity, Defendant.

Case No. 2:14cv606

United States District Court, E.D. Virginia, Norfolk Division .

Signed August 9, 2016

Anthony Joseph Mazzeo, Daniel R. Weckstein, Ellen Frances Bergren, Vandeventer Black LLP, Norfolk, VA, for Plaintiff.

Edmund M. Ferguson, Steven J. Riegel, U.S. Department of Justice, Washington, DC, Virginia Lynn Van Valkenburg, United States Attorney Office, Norfolk, VA, for Defendant.

OPINION AND ORDER

Mark S. Davis, United States District Judge

This Opinion and Order follows a ten day bench trial involving numerous disputes arising out of a maritime contract between East Coast Repair & Fabrication, LLC, ("ECR" or "Plaintiff") and the United States of America, through the Department of the Navy, and its activity the Norfolk Ship Support Activity (hereinafter collectively "Defendant," the "Government," or the "Navy"). With the benefit of the trial transcript, the parties have filed post-trial briefs and submitted proposed findings of fact and conclusions of law. Therefore, the matter is now ripe for review.

I. Background Findings of Fact¹

A. Preliminary Summary

The instant action involves numerous contract disputes arising out of the overhaul of a Navy vessel by ECR, a private ship repair company. A summary of the case would be incomplete without acknowledging at the outset that such overhaul was in many ways doomed from the start, marred by disputes among the various Government teams, inexperience of key Government players, underestimation of the complexity of the repairs by ECR and its primary subcontractor Técnico Corporation ("Técnico"), a defective Government specification based on an outdated hull survey, various "moving ball" standards employed by the Government regarding the manner in which hull "deflection" was measured, multi-month delays occurring at the outset of the overhaul, and lack of training and/or understanding of the unique nature of the type of vessel being overhauled by project managers, engineers, and other persons working in key positions for ECR, Técnico, and the Government. These and other issues somewhat predictably led the parties to this Court, and the only easy conclusion to draw from the trial evidence is that it is impossible to apportion the entire blame for the contract disputes to one party or the other. Against such backdrop, the Court makes the following findings and conclusions, ultimately entering a PARTIAL DAMAGE AWARD to ECR, and to its primary subcontractor Técnico on multiple "pass-through" claims.

B. Stipulated Facts and Procedural Background²

1. Plaintiff, ECR, is a Virginia corporation organized under the laws of the Commonwealth of Virginia with its principal place of business in Norfolk, Virginia. ECR performs ship repair work for commercial customers and for the United States Government, including the U.S. Navy.

2. The subject of this dispute arises from a contract between the Navy and ECR under contract number N50054–11–C–1107 (hereinafter the "Contract") for ship repair work on the vessel USS THUNDERBOLT (PC–12) (hereinafter the "THUNDERBOLT" or the "Vessel"). The Government has issued a Contracting Officer's Final Decision denying ECR's Request for Equitable Adjustment (hereinafter "REA") seeking additional compensation for vessel repairs performed on the THUNDERBOLT.

3. The THUNDERBOLT is a Navy Patrol Coastal Ship of the CYCLONE class ("PC") and is a public vessel of the United States being operated by the Navy as part of the United States fleet. The THUNDERBOLT has been homeported and forward deployed at Naval Support Activity Bahrain since July 3, 2013, but was, at times relevant to this lawsuit, homeported in, and the repair work at issue was completed in Hampton Roads, which is within the Eastern District of Virginia.

4. The Navy built the CYCLONE class of patrol craft, including the THUNDERBOLT (PC–7), in the early 1990's as support craft for Navy SEAL teams. The CYCLONE class ships were originally designed for a service life of fifteen years, and by 2010, the ships were found to have suffered metal fatigue in their hulls. However, when a new mission for the ships in the Arabian Gulf was identified, the Navy undertook extensive repairs to the ships to extend their usefulness in the new role.

5. As the repairs to accomplish the overhauls of the CYCLONE class ships were identified and specifications were written, an initial contract for the overhaul of the THUNDERBOLT was finalized between the Navy and Marine Hydraulics International ("MHI"). The disassembly of the THUNDERBOLT began under such contract, and the parts were stored by MHI.³

6. In the spring of 2011, the Navy solicited another contract to complete the overhaul of the THUNDERBOLT that was begun by MHI. The solicitation sought fixed price bids for the specified repairs and advised potential bidders that the Vessel had been partially disassembled, with many parts in storage.

7. ECR prepared and submitted its quote for the THUNDERBOLT work and contract, relying on the information the Navy made available during the proposal phase regarding the scope of the work to be performed (the "specification" or "Specification Package"). The Navy awarded the Contract to ECR on August 25, 2011, at ECR's bid price of $7,317,394. Such Contract was a "Fixed Price" contract, as contrasted with a "Cost Reimbursement Contract."⁴

8. The Contract contained four (4) Contract Line Item Numbers or CLINs, and all disputes at issue in this case pertain to the performance of CLIN 1, which was the main work item. CLIN 1 required ECR to: Plan for and accomplish the drydocking restricted availability (DRAV) of USS THUNDERBOLT (PC–12) SSP 038–11 (excluding CLIN 002). Among the Contract work to be performed was the cropping out and replacement of the THUNDERBOLT's hull structure, plate, and stiffeners, referred to as the "structural steel work." The bulk of this work was to be performed while the THUNDERBOLT was docked at ECR's repair facility.

9. Specification Package # 037–11 listed fifty-seven Navy "Standard Items" that were explicitly incorporated into the Contract, named fifty-seven more Standard Items which might be invoked as changes were made to the Contract, then described the "Planned Work" of the overhaul in fifty-nine "Work Items" that specified the exact work to be done on the Vessel.

10. The initial schedule under which the work was to be accomplished was specified in the Contract as a series of milestones. The THUNDERBOLT was towed to ECR on September 26, 2011, starting the availability, and the last milestone was the completion of the availability, which was to be accomplished by June 22, 2012. The initial performance period of the Contract was therefore 270 days. The original Contract milestones called for the docking to occur on October 7, 2011, and for undocking to occur on May 10, 2012.

11. The "Changes" clause incorporated into this Contract, Federal Acquisition Regulation ("FAR") 52.243–1 (Alt II—Aug. 1987), provides that changes to such fixed price contract can be made by the "Contracting Officer" and that: "If any such change causes an increase or decrease in the cost of, or the time required for, performance of any part of the work under this contract, whether or not changed by the order, the Contracting Officer shall make an equitable adjustment in the contract price, the delivery schedule, or both, and shall modify the contract."

12. As the overhaul of the THUNDERBOLT progressed, plans and procedures for the work detailed in the specification package caused delays and new "growth" work was added to the package. As these new requirements arose, the Navy eventually issued a series of fifty-nine written Contract modifications.

13. Of these fifty-nine modifications, forty-three were bilateral, i.e., signed and agreed to by both the Navy and ECR as to the price and the impact on the then current schedule. The remaining sixteen modifications were unilateral, i.e., issued and priced by the Navy but not agreed to by ECR. The unilateral modifications included prices and/or time extensions granted by the Navy but not agreed to by ECR, and several involved "credits" reducing the overall Contract price.

14. After issuance of the fifty-nine modifications, the total Contract price was $15,536,680.57, and the contractually scheduled/allowed final completion date was December 9, 2012. The performance period was therefore extended by the Navy from the original 270 days by an additional 172 days. The THUNDERBOLT availability was not complete until April 2013, several months after the modified performance date.⁵

15. On September 27, 2013, some months after ECR had completed work on the Vessel and delivered it to the Navy, ECR submitted its properly certified REA to the Navy seeking further adjustment of, and compensation for, the changes to the work scope and means and methods of performance on the THUNDERBOLT under the terms of the Contract.

16. On or about September 8, 2014, the Navy issued its Final Decision by letter Serial 414/WKR/306. The Navy's Final Decision denied ECR's REA in its entirety, to include the claims ECR submitted on behalf of its subcontractors. The Final Decision also provided notice to ECR of its right to appeal the Final Decision.

17. On or about November 25, 2014, ECR filed this timely appeal of the Contracting Officer's Final Decision in the United States District Court for the Eastern District of Virginia, Norfolk Division.

18. Subsequent to the filing of this lawsuit, ECR and one of its subcontractors, Marine & Industrial Coatings, LLC ("MIC"), entered into negotiations to resolve the then-pending subcontractor "pass-through" claim which was included with the ECR damages calculations.

19. MIC and ECR settled the MIC subcontractor REA for $650,000 which is approximately 52% of the original value of MIC's claim ($1,2...