Krygoski Const. Co., Inc. v. U.S.

• Decision Date: 01 August 1996
• Docket Number: No. 95-5136,95-5136
• Parties: 41 Cont.Cas.Fed. (CCH) P 76,985 KRYGOSKI CONSTRUCTION COMPANY, INC., Plaintiff-Appellee, v. The UNITED STATES, Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

Page 1537

94 F.3d 1537

41 Cont.Cas.Fed. (CCH) P 76,985

KRYGOSKI CONSTRUCTION COMPANY, INC., Plaintiff-Appellee, v. The UNITED STATES, Defendant-Appellant.

No. 95-5136.

United States Court of Appeals, Federal Circuit.

Aug. 1, 1996.

Rehearing Denied; Suggestion for Rehearing In Banc Declined

Nov. 7, 1996.

H. Robert Showers, Gammon & Grange, P.C., McLean, Virginia, argued, for plaintiff-appellee. With him on the brief was Peter F. Rathbun.

Sheryl L. Floyd, Senior Trial Counsel, Commercial Litigation Branch, Civil Division, Department of Justice, Washington, D.C., argued, for defendant-appellant. With her on the brief were Frank W. Hunger, Assistant Attorney General, and David M. Cohen, Director. Of counsel was Arvis Freimuts, Assistant District Counsel, U.S. Army Corps of Engineers, Detroit, Michigan.

Before RICH, RADER, and BRYSON, Circuit Judges.

RADER, Circuit Judge.

The United States Court of Federal Claims determined that the United States Army Corps of Engineers (Corps) had no justification for terminating a demolition contract with Krygoski Construction Company, Inc. (Krygoski) for the Government's convenience. Krygoski Constr. Co. v. United States, No. 214-89C (Fed.Cl. March 2, 1993). To remedy the breach, the trial court awarded Krygoski $1,456,851.10 in damages plus interest pending payment. Krygoski Constr. Co. v. United States, No. 214-89C (Fed.Cl. May 19, 1995). Because the trial court incorrectly relied on Torncello v. United States, 231 Ct.Cl. 20, 681 F.2d 756 (1982), this court reverses and remands.

BACKGROUND

In 1985, the Corps undertook demolition of an abandoned U.S. Air Force airfield and missile site near Raco, Michigan. During surveys of the site, the Corps found asbestos contamination. Based on blueprints and its survey, the Corps estimated that two buildings at the site contained asbestos contamination in 1600 linear feet of pipe insulation and 650 square feet of tank and duct insulation. The survey also revealed that extensive vandalism may have spread asbestos debris on the floors of the buildings.

On August 12, 1985, the Corps issued an invitation for bids on the demolition project. The solicitation noted that bids should range between $500,000 and $1,000,000. Eight bidders bid on the contract. Krygoski won the contract with the low bid of $414,696. On or

about September 30, 1985, Krygoski and the United States through the Detroit District of the Army Corps of Engineers entered into Contract No. DACA35-85-C-0001. This contract required removal and disposal of the asbestos during restoration of the site. Seven line items in the contract specifically addressed asbestos abatement:

                      1.  Asbestos Pipe Insulation                   Unit      Unit Price
                          Removal and Disposal
                          a.  First 1600 Linear feet            1600 L.F.          $10.98
                          b.  Over 1600 Linear feet              700 L.F.          $10.75
                      2.  Asbestos Tank and Duct Insulation
                          Removal and Disposal
                          a.  First 650 Square feet              650 S.F.          $ 8.90
                          b.  Over 650 Square feet               100 S.F.          $ 8.78
                      3.  Demolition, Removal and
                          Disposal                               1 Job        $260,940.00
                      4.  Underground Tank Excavation
                          and Backfill
                          a.  First 6700 Cubic Yards            6700 C.Y.          $ 3.00
                          b.  Over 6700 Cubic Yards             3300 C.Y.          $ 2.00
                      5.  Fill
                          a.  First 12,000 Cubic Yards        12,000 C.Y.          $ 2.50
                          b.  Over 12,000 Cubic Yards          5,000 C.Y.          $ 2.00
                      6.  Missile Silo Fill                     28 EA.          $1,000.00
                      7.  Topsoil, Seeding
                          and Mulching                        39,000 S.Y.          $  .70
                ----------
                

The contract contained a Variations in Estimated Quantities (VEQ) Clause for items 1, 2, 4, and 5 above:

Variation from the estimated quantity in the actual work performed under any second or subsequent sub-item ... will not be the basis for an adjustment in contract unit price.

This VEQ Clause anticipated variations in asbestos quantities for these four items at the Raco site. The VEQ Clause, however, did not contemplate quantity variations for asbestos removal in other areas.

Krygoski conducted a predemolition survey. Just ten days after Krygoski acknowledged receipt of the notice to proceed with the contract, Mr. Phillips, Krygoski's counsel, informed the Corps of asbestos in the vinyl flooring and roof insulation of the Raco buildings. Krygoski proposed to remove the tile for a unit price of $8.78 per square foot--the cost of removing additional duct insulation under item 2 of the VEQ Clause. The Corps requested Thermo Analytical, Inc. to take samples at potential new locations of asbestos contamination. The tests showed asbestos in the tile and the flashing at the Composite building, but not in the roof insulation.

From examining the drawings, the Corps' Area Office estimated asbestos removal needs at 36,340 square feet. At Krygoski's removal price of $8.78 per square foot, this amount of removal yielded an additional cost of about $320,000 for the floor tile. The Corps did not, however, actually test each tile. The Corps derived its estimate from the drawings.

The contracting officer, Lieutenant Colonel Phillip Johnson (LTC Johnson), considered a price increase of this dimension a cardinal change in the contract. LTC Johnson reached this conclusion because this increase exceeds 33% of the total contract cost. For a change of this magnitude, the Corps followed Following the termination, the Corps resolicited bids for the Raco site demolition. The Corps revised its specifications to reflect the additional asbestos removal work as well as other changes. The Corps received eight offers on this new solicitation, DACA35-87-B-001. Krygoski was the sixth lowest bidder at $1,200,000. Anderson Excavating & Wrecking Co. (Anderson) won the bidding at $443,200. Due to modifications to the contract, the Corps eventually paid Anderson a total of $542,861.60 to complete the contract.

a general policy of terminating the contract for the convenience of the Government and reprocuring the work competitively under the Competition in Contracting Act. LTC Johnson also considered that Krygoski had not started work on the contract. In fact, Krygoski had done little beyond transporting four pieces of equipment to the Raco site. In light of these circumstances, the Corps terminated the contract for the convenience of the Government on September 5, 1986.

Krygoski sued in the Court of Federal Claims alleging that the Corps breached its original contract. Relying on Torncello, 681 F.2d at 772 (reading the termination for convenience clause to require some change in the circumstances of the bargain or in the expectations of the parties), the trial court found the Government improperly terminated Krygoski's contract. In the alternative, the trial court found the Government abused its discretion in terminating the contract under the Kalvar standard. Kalvar Corp. v. United States, 211 Ct.Cl. 192, 543 F.2d 1298, 1301-02 (1976), cert. denied, 434 U.S. 830, 98 S.Ct. 112, 54 L.Ed.2d 89 (1977). Accordingly, the trial court awarded Krygoski $1,456,851.20 in damages plus interest. This amount included anticipatory lost profits. The Government appeals.

DISCUSSION

This court reviews Court of Federal Claims decisions for errors of law and clearly erroneous findings of fact. Cooper v. United States, 827 F.2d 762, 763 (Fed.Cir.1987) (citing Milmark Servs., Inc. v. United States, 731 F.2d 855, 857 (Fed.Cir.1984)).

The trial court thoroughly analyzed the factual circumstances and legal principles of this case. Its careful work properly framed the issues for this appeal. As the trial court perceived, the case law governing the decision to terminate a contract for convenience has not always set a clear, unambiguous standard. See Torncello, 681 F.2d at 764-72 (recounting history of terminations for convenience). An examination of termination for convenience law from several decades ago discloses mixed signals about limiting terminations under the bad faith/abuse of discretion standard in Kalvar, 543 F.2d at 1301-06, or the change of circumstances test in Torncello, 681 F.2d at 772. A full review of more recent case law, coupled with recent enactments, however, discloses a clear signal for implementation of termination for convenience clauses.

I.

At the outset, this court traces some of the history leading up to articulation of two tests for convenience terminations. The Government always possessed the power to terminate its contracts; such action, however, constituted a contract breach. John Cibinic, Jr. & Ralph C. Nash, Jr., Administration of Government Contracts 1073 (3d ed.1995) [hereinafter Cibinic & Nash]. Terminations for the Government's convenience developed as a tool to avoid enormous procurements upon completion of a war effort. Because public policy counselled against proceeding with wartime contracts after an end to hostilities, the Government, under certain circumstances, began to terminate contracts and settle with the contractor for partial performance. In 1863, the Army, for example, promulgated Rule 1179 in the Army Regulations concerning contracting for subsistence stores. Rule 1179 expressly "provide[d] for [subsistence contract] termination at such time as the Commissary-General may direct." United States v. Speed, 75 U.S. (8 Wall.) 77, 78, 19 L.Ed. 449 (1868). The Supreme Court has acknowledged the Government's authority to settle breach claims after a convenience termination. Cf. United States v. Corliss-Steam Engine Co., 91 U.S. 321, 323, 23 L.Ed. 397 (1875) (finding the Navy Department had authority to suspend work under a contract and enter into a breach settlement for partial performance); see also Cibinic & Nash, at 1073-74.

After World War I, the Government terminated contracts...