U.S. v. Johnson Controls, Inc.

Decision Date02 August 1983
Docket NumberNo. 65-82,65-82
Citation713 F.2d 1541
Parties31 Cont.Cas.Fed. (CCH) P 71,374 The UNITED STATES, Appellant, v. JOHNSON CONTROLS, INC., Appellee. Appeal
CourtU.S. Court of Appeals — Federal Circuit

Stephen G. Anderson, argued, Washington, D.C., for appellant; J. Paul McGrath, Asst. Atty. Gen., and David M. Cohen, Director, Washington, D.C., on the brief; Sherman D. Johnson, Atlanta, Ga., of counsel.

E.D. Gaskins, Jr., argued, Raleigh, N.C., for appellee; Charles C. Meeker, Raleigh, N.C., and Beverly D. Horn, Washington, D.C., on the brief.

David R. Hendrick and Martin R. Salzman, Atlanta, Ga., on the brief for Watson Elec. Const. Co. and Crawford Sprinkler Co. of Raleigh, Inc., amicus curiae.

Before MARKEY, Chief Judge, COWEN, Senior Circuit Judge, and BENNETT, Circuit Judge.

BENNETT, Circuit Judge.

The government appeals from a final decision of the Armed Services Board of Contract Appeals (ASBCA or board), ASBCA No. 25714, 82-1 BCA p 15,779. The ASBCA held that (1) it had jurisdiction under the Contract Disputes Act of 1978 (CDA or Act), 41 U.S.C. §§ 601-613 (Supp. V 1981), to decide a claim brought directly by a subcontractor, Johnson Controls, Inc. (Johnson); (2) Johnson was the proper party to certify the claim under the CDA; and (3) on the merits, Johnson was entitled to an equitable adjustment for the supply of redundant hardware. Since we hold that there was no privity of contract, and thus the ASBCA erred in assuming jurisdiction over Johnson's claim, we do not reach the certification issue and the issue of Johnson's entitlement to an equitable adjustment. We reverse and vacate.


On May 24, 1977, the Department of Health, Education, and Welfare (now the Department of Health and Human Services) entered into a contract with Turner Construction Company (Turner or the prime contractor) for services in connection with the construction of the National Institute of Environmental Health Sciences permanent laboratory facility in Research Triangle Park, North Carolina. This contract, No. 141-77-0006 (the prime contract), was entitled "Construction Manager Agreement, Construction Manager Services with Guaranteed Maximum Price." The guaranteed maximum price was stated as $65,394,000. Turner entered into approximately 74 subcontracts for the construction work on the project. Turner executed each subcontract in its own name. Although none of the subcontracts was executed by the government, each contract was subject to prior government approval. 1

One of these subcontracts was executed on September 27, 1977, between Turner and Johnson. This subcontract called for the supply and construction of a Central Control Center (CCC) for the temperature control/central monitoring of the facility. This subcontract incorporated the entire prime contract by reference and, in addition, some provisions of the prime contract were physically included. Some of the contract documents referred to Turner as "construction manager" and Johnson as "contractor," while other documents referred to Turner as "contractor" and Johnson as "subcontractor." In addition, the contract contained the following key provision, hereafter referred to as the "ABC" clause:

Throughout the contract documents ... reference is made to (a) the Government, Owner and/or Contracting Officer who for this project is the Department of Health Education and Welfare, (b) the Construction Manager, Turner, and/or Contractor, and (c) the Subcontractor, Bid Package Contractor, and/or Contractor.

A contractual relationship shall exist only between the parties of (a) and (b) and between the parties of (b) and (c). It is not intended to develop a relationship either contractually, administratively, operationally, or in any other manner between the parties of (a) and (c). However, it is the intent of the Construction Manager (b) without establishing a contractual relationship between (a) and (c) to pass on to the Subcontractor (c) as a tier contractor, the responsibilities the Construction Manager has assumed as defined within the Contract Documents unless specifically noted otherwise and toward this end the dual usage of Contractor is intended and shall be understood.

In June and July 1978, Johnson made submittals for the CCC. Four computers were shown in the submittals. On October 9, 1978, Turner rejected these submittals because, among other reasons, "redundant hardware is not being supplied as specified." Johnson agreed to modify the proposed system to include redundant hardware, but also gave notice of its intention to file a claim for the additional expense that would be incurred. As installed, the CCC system contained seven computers rather than the four computers contemplated by Johnson.

On May 16, 1980, Johnson certified its claim for $221,150, pursuant to the requirements of the CDA, 41 U.S.C. § 605(c)(1). On May 19, 1980, Turner forwarded Johnson's claim to the contracting officer for a decision. Turner joined in the request for a determination under the CDA. Turner, however, declined to certify the claim on the ground that Johnson was the only party who could logically and realistically certify the claim.

On June 9, 1980, the contracting officer accepted the claim, but also informed Turner that he reserved further processing of the claim until Turner certified it. Turner's refusal to certify the claim was not unique to Johnson. At this time, Turner had taken the same position on claims of four other subcontractors.

On July 2, 1980, Turner submitted a report to the contracting officer on the merits of Johnson's claim, as was required by a provision in the prime contract. The report stated, in part:

We recommend rejection [of the claim], on the basis that what Johnson is identifying as extra cost and beyond their contract requirements is in actuality within the specified scope of work.

On August 13, 1980, however, Turner certified Johnson's claim. 2 The contracting officer still consistently refused to issue a final decision on the merits. On January 13, 1981, Johnson appealed directly to the ASBCA, noting the failure of the contracting officer to issue a decision on its claim. See 41 U.S.C. § 605(c)(5). Upon receipt, the board docketed the appeal in Johnson's name.

Before the board, the government brought a motion to dismiss on the ground that Turner had not submitted a valid certification, which was a prerequisite to the board's jurisdiction. Apparently the government felt that Turner's certification of Johnson's claim was invalid because of Turner's earlier statement that Johnson's claim should not be paid. The board denied the government's motion. 82-1 BCA at 78,143. On the merits, the board held that Johnson was entitled to an equitable adjustment for its supply of redundant hardware.

The Bristol Decision

The board's holding on jurisdiction in this case is based solely upon its earlier holdings in Bristol and Industrotech. 3 The Industrotech decision, in turn, is based upon the reasoning and holding of the board in Bristol. 4 A thorough analysis of the ASBCA's holding on jurisdiction in this case, therefore, requires an examination of the board's holding and reasoning in the Bristol case. Fortunately, the contract provisions relied upon by the board in the Bristol case are identical to the provisions relevant to this appeal; the prime contract is of course the same in both cases, and the provisions of the Turner-Bristol contract relied upon are similarly found in the Turner-Johnson contract.

In order to review the board's holding in Bristol that there is privity of contract between the subcontractor and the government, it is necessary to examine the contract provisions in both the prime contract and the subcontract. The following provisions of the prime contract were used to support the board's conclusion that Turner was, in effect, an "agent of the government."

Article 1.1, Purpose and Intent, states:

The primary purpose and intent of Activity "B" of this Agreement is to secure the services of a Construction Manager [Turner] to organize and direct the complete construction of the project and to assume all risks and responsibilities of producing the project within a Guaranteed Maximum Price.

Article 3.4 provides, in part:

The general function of the Construction Manager is to serve as the Government representative with responsibility directly to the Government. His employment should be such to preclude any conflict of interest.

Article 3.6.1 states:

The Government shall be responsible for approving awards of all contracts after evaluation and recommendations by the Construction Manager. After Government approval the Construc-Manager [sic] shall make the award.

See also Construction Management Special General Provisions (CMSGP), subparagraph e, Provision 11, Solicitation of Bids, 81-1 BCA at 74,528.

Article 3.7.3 provides with respect to subcontracts:

Each trade contract awarded by the Construction Manager is a separate contract awarded on the basis of competitive bidding. These contracts are referred to as subcontracts to conform to insurance terminology utilized in standard insurance policies. For insurance purposes the relationship of the Construction Manager to the trade contractor is the same as that of a subcontractor.

Article 4.6.2 states, inter alia, that it is the government's responsibility to maintain an inspection staff at the job site for the inspection of the work of the construction manager and, with Turner's assistance, the work of the separate contractors (i.e., subcontractors). This provision goes on to state that "[t]he Government shall have the sole authority and duty to reject work which does not conform to the contract requirements." The government is also given the power of interpretation of the meaning and intent of the drawings and specifications. See also CMSGP, Provision 13, id.

In Articles 4.10.1 and 4.10.2 the government is empowered to request changes in the work, or to approve changes...

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