Massman Const. Co. v. Tennessee Valley Authority
| Decision Date | 13 August 1985 |
| Docket Number | No. 84-5375,84-5375 |
| Citation | 769 F.2d 1114 |
| Parties | 33 Cont.Cas.Fed. (CCH) 73,773 MASSMAN CONSTRUCTION CO., Plaintiff-Appellant, v. TENNESSEE VALLEY AUTHORITY, Defendant-Appellee. |
| Court | U.S. Court of Appeals — Sixth Circuit |
R.W. Miller, argued, Miller & Bash, P.C., Stephen J. Dennis, Kansas City, Mo., for plaintiff-appellant.
Herbert S. Sanger, Jr., Gen. Counsel, James E. Fox, Associate Gen. Counsel, Edwin W. Small, (argued), Tennessee Valley Authority, Knoxville, Tenn., for defendant-appellee.
Before MERRITT, CONTIE and WELLFORD, Circuit Judges.
On March 13, 1975, Tennessee Valley Authority (TVA) awarded Massman Construction Co. (Massman) a contract for excavation of a discharge channel and construction of sheet pile cells at TVA's Raccoon Mountain Pumped Storage Project on the Tennessee River near Chattanooga, Tennessee. The contract initially called for the completion of all work by December 15, 1975, and contained a standard "Disputes" clause setting out the manner for handling contract disputes in accordance with TVA's usual administrative procedures. The contract price was $2,565,400.00.
Because of project delays, TVA advised Massman not to begin the project until August, 1976. TVA later directed Massman to shut down its dredging and soil operation between April 30 and August 1, 1977 due to environmental concerns and a fish spawning at the location for most of the river excavation and dumping. Massman finally completed all required work under the contract in February of 1978.
Massman subsequently submitted claims for additional costs allegedly caused by these delays in the amount of $1,168,984.00. An exchange of letters ensued between the parties over these substantial claims. A TVA purchasing agent rejected Massman's cost calculations in a letter dated June 4, 1979. On June 20, 1979 Massman appealed to TVA's Director of Purchasing and the Director appointed a representative (James W. McCarter) to consider Massman's claims. On November 20, 1979 the Director's representative decided that TVA was liable for excess costs pertaining to the three-month suspension of excavation. Yet the Director's representative also decided that TVA was not liable for those costs pertaining to the delayed commencement of the work. Massman presented its monetary claims of cost for the suspension of excavation, and the Director's representative ruled that TVA owed Massman a total of $361,336 for the suspended period of 1977. 1
Claiming additional amounts for the 1977 suspension period and substantial amounts for delay at the onset of the job, Massman filed a timely appeal with TVA's General Manager pursuant to the contract's disputes provision. The General Manager appointed Dean Kenneth L. Penegar, of the University of Tennessee College of Law, as his representative to conduct an evidentiary hearing on Massman's claims. In response to Massman's inquiries about hearing procedures, TVA stated by letter on January 18, 1980 that the "only published regulations relating to hearings in TVA contract disputes are those implementing the Contract Disputes Act of 1978." 2 According to the TVA letter, the instant controversy was "not governed by that act [the Contract Disputes Act]" but was to be determined solely under the Disputes clause of the contract.
The parties agreed to separate hearings on the liability and damages aspects of Massman's claims. On August 4, 1980, Dean Penegar opened hearings on liability, wherein TVA contested liability for both the start-up delay and the later suspension of excavation. After presenting evidence, both parties submitted numerous post-hearing briefs. In March of 1981 Dean Penegar issued a decision holding that TVA was liable for costs due to the start-up delay as well as the later work suspension. Dean Penegar scheduled a later damages hearing for which the parties again submitted multiple post-hearing briefs. Almost a year later in 1982, Dean Penegar issued his decision rejecting Massman's damage computations.
Dean Penegar had asked the parties to submit computations in accordance with his decision on issues of liability of TVA. Massman proposed an order for an award of $809,472 in addition to the $420,667 already paid. TVA submitted its computation for a total award of $378,541, which required that Massman return the difference of approximately $42,000 between the $420,067 already paid out and its proposed award. 3
Dean Penegar entered a final order on May 27, 1983 essentially accepting TVA's proposed liability calculations and rejecting Massman's calculations. Shortly before the hearing officer's order, Massman filed suit in federal district court against TVA for damages, claiming a lack of procedural fairness in the administrative process, legal errors on the part of hearing officer, and demanding a de novo hearing. 4
The district court subsequently granted TVA's motion for summary judgment. The court rejected Massman's contention that it was entitled to de novo hearing of all issues under the Contract Disputes Act of 1978, and instead held that Massman had waived any right to proceed under the Act. The district judge also upheld the administrative decision as neither arbitrary, capricious, nor lacking in substantial fairness. Finally, the court held that an ex parte communication by TVA with Dean Penegar, under the circumstances, was no basis to void the decision.
Massman now challenges the district court's grant of summary judgment affirming Dean Penegar's administrative decision. Massman asserts that TVA failed to provide the minimum information necessary for Massman to make a knowing waiver of its right to demand a de novo hearing under the Act. Second, regardless of its alleged right to a de novo hearing under the Act, Massman asserts that the administrative decision fails to deserve judicial deference due to numerous legal errors as well as an arbitrary and capricious treatment of evidence in the record. Finally, Massman asserts that the court should not have granted summary judgment because material issues of fact exist concerning its procedural fairness claim.
The trial court reached the following negative conclusion with respect to this question:
Plaintiff's rights to proceed under the Contract Disputes Act are regulated by the provisions of 18 C.F.R. Sec. 1308.4 (1983). This section requires that in all claims involving pre-Act contract disputes initiated after March 1, 1979, a written notice of election to proceed under the Act must be included in the document first requesting a decision by the contracting officer. Plaintiff failed to include such a notice of election in its letter of June 20, 1979, wherein plaintiff first submitted its claim to TVA. Thereby plaintiff waived its rights to proceed against TVA under the Act and is bound by the administrative appellate remedies provided in the Contracts Disputes clause [of the contract]. See Brown & Root Development, Inc. v. TVA, 681 F.2d 1313 (11th Cir.1982).
The trial court failed to discuss Massman's assertion that it did not knowingly waive its rights. By inference, however, the court held that Massman was bound by the relevant statutes and regulations regardless of any lack of actual knowledge.
We express reservations about the district court's position that Massman waived its statutory remedy by failing to follow the procedure required under 18 C.F.R. Sec. 1308.4. We agree with the district court that 18 C.F.R. Sec. 1308.4 requires all pre-Act contractors who initiate a dispute after March 1, 1979, to provide immediate notice On appeal TVA argues that not until after March 1, 1979 date did the varying cost estimates exchanged by TVA and Massman materialize into a "dispute" under the Act. TVA emphasizes that Massman never literally referred to the disagreements with TVA as a "dispute" until June 20, 1979. This first use of the word "dispute" came in Massman's request to the TVA Director of Purchasing to reconsider the purchasing agent's rejection of its final cost estimates. 6
of their election to proceed under the Act. 5 There is some question, however, whether Massman had actually initiated the dispute before March 1, 1979. It is clear, for example, that before this date Massman had exchanged more than a dozen memos with TVA regarding their claimed cost charges
TVA also argues that no dispute was pending with a contracting officer before March 1, 1979. TVA points out that 18 C.F.R. Sec. 1308.4(a) refers to "any dispute pending before a contracting officer on March 1, 1979...." The TVA contract with Massman specifically stated that the TVA purchasing agent administering the contract was not "the Contracting officer" for purposes of the disputes clause of the contract. 7 Massman's pre-March 1, 1979 exchanges with purchasing agent Baltz did not therefore technically constitute a controversy before a "contracting officer." The contract instead specified the Director of Purchasing as the contracting officer, 8 and Massman did not bring the issue before the Director until the June 20, 1979 letter in which the word "dispute" was used for the first time. 9
We could thus base a decision on the referenced regulatory language and definitions concerning the lack of any dispute pending on March 1, 1979. TVA, however, published its regulations under the Contract Disputes Act on May 22, 1979--only two weeks before its purchasing agent rejected most of Massman's cost charges and less than a month before Massman responded by initiating a "dispute" with the Director of Purchasing. Before the belated issuance of TVA's regulations, the language of the Act itself certainly seemed to give contractors in the posture of Massman an open opportunity to proceed under its provisions. The official note on the "Effective Date" of the Act stated that the legislation
shall apply to contracts entered into one hundred twenty days...
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