Dawco Const., Inc. v. U.S., 90-5074

• Decision Date: 03 April 1991
• Docket Number: No. 90-5074,90-5074
• Citation: 930 F.2d 872
• Parties: 37 Cont.Cas.Fed. (CCH) 76,056 DAWCO CONSTRUCTION, INC., Plaintiff-Appellee, v. The UNITED STATES, Defendant-Appellant.
• Court: U.S. Court of Appeals — Federal Circuit

Page 872

930 F.2d 872

37 Cont.Cas.Fed. (CCH) 76,056

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

No. 90-5074.

United States Court of Appeals Federal Circuit.

April 3, 1991.

Richard D. Corona, Corona, Balistreri & Ramseyer, of San Diego, California, argued, for plaintiff-appellee. With him on the brief was C. Kevin Bond.

Donald E. Kinner, Atty., Commercial Litigation Branch, Dept. of Justice, of Washington, D.C., argued, for defendant-appellant. With him on the brief, were Stuart M. Gerson, Asst. Atty. Gen., David M. Cohen, Director, Thomas W. Petersen, Asst. Director and Mary Mitchelson, Asst. Director.

Before MARKEY, ARCHER, and MICHEL, Circuit Judges.

MICHEL, Circuit Judge.

The United States appeals the judgment of the United States Claims Court awarding Dawco Construction, Inc. ("Dawco") $529,935, plus interest, as an equitable adjustment for differing site conditions encountered in performance of the landscape portion of a housing refurbishment contract. Dawco Construction, Inc. v. United States, No. 450-86C (Cl.Ct. Nov. 17 & 22, 1989, 18 Cl.Ct. 682 and Feb. 5, 1990). Defendant-appellant also appeals the Claims Court ruling that it had jurisdiction to entertain the contractor's claim, contending that Dawco did not "submit" a claim to the contracting officer, as required under the Contract Disputes Act. 41 U.S.C. Sec. 605 (1988).

Although the Claims Court correctly ruled that it could hear Dawco's claim, it erroneously adopted the "jury verdict method" to measure the quantum of damages due the contractor. Accordingly, we affirm-in-part, upholding its ruling on jurisdiction, reverse-in-part, overturning the judgment awarding damages, and remand for a proper determination of damages.

BACKGROUND

A. The Contract Dispute

Dawco was awarded a contract to refurbish the Cabrillo-Larksdale Naval housing project near San Diego, California, in August 1983. As part of the contract, Dawco was also required to landscape the grounds around six individual housing areas, a total of 903,000 square feet. Dawco, in turn, subcontracted this portion of the work to J.C. Landscape ("JCL") for $460,000.

After the contract award, the Navy determined that the grading required by the contract specifications would not produce acceptable drainage and in a September 26, 1983 letter, directed Dawco to suspend all landscaping work until further notice and to continue only refurbishing the buildings. The Navy then developed a new drainage plan calling for installation of an underground drainage system in four of the six areas. The drainage system redesign was detailed in a Change Order Request, and was accompanied by a request for a cost proposal. The Navy, however, rejected Dawco's proposed costs, presented in a May 21, 1984 letter from JCL to the Navy, and decided instead to landscape only the two of the six areas that did not need underground drainage lines.

On May 29, 1984, the Navy formally issued a change to the contract, designated "PCO 20," "[d]elet[ing] entirely" all landscaping work on four areas and directing Dawco to complete, in accord with the original contract specifications, the landscaping site work on the other two areas. In addition, the two areas were enlarged by 35,900 square feet. The change resulted in a net reduction of 397,540 square feet, or at least 44 percent, of the original 903,000 square foot area to be landscaped.

After resuming the landscaping work over the two areas, JCL encountered the differing site conditions that are the subject of this appeal. JCL contended that the areas were not maintained during the eight-month suspension in work, causing On October 9, 1985, Dawco's counsel sent a letter to Richard G. Thurman, the Navy "contracts manager" and the representative of the Resident Officer In Charge of Construction ("Resident Officer"), explaining that Dawco "would like to start settlement discussions as soon as possible" concerning additional costs arising from the differing site conditions. Jt.App. at 110. Although there may have been an earlier undated proposal in the same amount, on November 22, 1985, the Navy received a proposal from Dawco seeking $325,063 as an equitable adjustment. According to Thurman's letter of November 15, 1985, Dawco had, up to that time, "made no presentation" concerning Dawco's costs as the prime contractor, only JCL's as subcontractor, on the landscaping work. Jt.App. at 111. Thurman stressed that the Navy "must have your [complete] proposal in hand in order to obtain funding and proceed to negotiation." Id. The November 22 proposal, however, was, according to Thurman, also limited to JCL's proposed costs.

                the site to "deteriorat[e] significantly."    Dawco Construction, Inc. v. United States, 18 Cl.Ct. 682, 685 (1989).  The resulting new conditions consisted primarily of overgrowth and other obstructions on or within the topsoil, characterized by the Claims Court as "unexpected massive rambling dispersed subsurface running tree roots, rock, boulders, cobble, abandoned water lines not shown on the drawings, weed root masses, demolition debris, galvanized copper piping, asphalt, [and] concrete."    Id. at 695-96
                

Two months later, on January 9, 1986, Dawco's counsel outlined the history of its "claim" and "request[ed] a Contracting Officers [sic] Final Decision on [its] claim of $325,063.00, which was submitted to the Government on or about November 15, 1985." Jt.App. at 115. Attached to the letter was a certification signed by Dawco's president, James H. Benson, and a list of apparently estimated costs.

On February 27, 1986, however, Thurman sent Dawco a letter stating that the Resident Officer was:

unwilling and procedurally unable to negotiate a settlement of the PCO # 20 landscape issue for any additive amount.

We will forward the issue for a contracting officer's final decision as soon as possible. Unless you submit a new proposal, we will forward your undated proposal for $325,063.... Please submit a certification in accordance with the "Disputes" clause of the contract's General Provisions.

Cl.Ct.Trial Exhibit No. 234 (emphasis added).

On April 9, 1986, Thurman wrote Dawco and acknowledged receipt of an April 2, 1986 letter from Dawco. ¹ In this letter, Thurman recited the Navy's reasons for construing Dawco's earlier letters as not constituting proper submission of a certified claim. According to Thurman, Dawco's assertion that it submitted a claim in May 1984 was "not possible" because the Navy did not direct Dawco to proceed on the contract before May 29, 1984--the date the PCO was issued. In addition, the May 1985 letter, Thurman explained, was insufficient because it consisted only of JCL's proposal and did not include "a listing of [Dawco's] own costs and credits." Jt.App. at 121. Since only the April 2, 1986 letter was sufficient, according to the Navy, to constitute a proper claim, Thurman wrote that the 60-day claim resolution requirement of the Contract Disputes Act was triggered by receipt of the April 2, 1986 letter.

Nevertheless, because of Dawco's failure to "identify the difference between the cost to perform the landscape work as contracted for and the cost to perform the work with the deletions and differing site conditions," the contracting officer declined to issue a decision on the equitable adjustment due Dawco. Govt.Br. at 10.

On July 21, 1986, well after the 60-day period for decision had expired, Dawco

filed suit in the Claims Court seeking an additional $591,678 for the landscape portion of the contract.

B. Claims Court Proceedings

In a series of orders ultimately awarding Dawco an equitable adjustment of $529,935, the Claims Court began by acknowledging the "natural assumption" that a contract change reducing the amount of work to be performed "would, on its face, entitle [the Navy] to a corresponding reduction in the price of the [sub]contract." Dawco, 18 Cl.Ct. at 685. However, the court explained, Dawco, and its subcontractor, JCL, both formulated their bids on the "existing conditions" at the time of bidding. By the time JCL resumed its landscaping work, those conditions had changed significantly, nullifying the "natural assumption" that a corresponding decrease in costs should follow an at least 44 percent decrease in the area to be landscaped.

At trial, the court relied heavily on the testimony of Lance Edmunson, the owner/operator of a tractor service, to whom JCL subcontracted the excavation work needed to overcome the differing site conditions. It was Edmunson, the court said, who "bore the main brunt of the extra efforts; his task was to remove the thatch and roots and grade the surface. In so doing, he directly encountered, more than any other person or firm, the material that constituted the differing site condition." Id. at 700. The court found that Edmunson's records, unlike Dawco's or JCL's, "were kept in such a manner that he could show to the satisfaction of the court that it cost him an additional $8,100 to perform the extra work caused by the differing site condition, an increase of twenty-seven percent." Id.

To determine the equitable adjustment, the Claims Court adopted the "jury verdict method," in part due to the "wildly divergent" estimates of costs presented by Dawco and the government. Id. at 699. It concluded that Dawco was unable, despite Edmunson's testimony, to "prove actual damages," although the court was nevertheless able "to arrive at a fair approximation of the damages." Id. at 698.

Initially, the court calculated the effect of the change order, decreasing the area to be landscaped by at least 44 percent on the subcontract as a whole, and reduced the original price from $460,000 to $303,155. That price included a 17.6 percent surcharge, assessed by the court to cover additional expenses attributed to a "loss of economy of scale," because the contract had originally been bid on a substantially larger area. Id. at 700. To that amount,...