Odyssey International, Inc. ( 2020 )

ARMED SERVICES BOARD OF CONTRACT APPEALS
Appeals of -- )
)
Odyssey International, Inc. ) ASBCA Nos. 62085, 62145, 62193
)
Under Contract No. W912HN-19-C-3005 )
APPEARANCES FOR THE APPELLANT: Brian C. Johnson, Esq.
H. Burt Ringwood, Esq.
Alan R. Houston, Esq.
Strong & Hanni Law Firm
Salt Lake City, UT
APPEARANCES FOR THE GOVERNMENT: Michael P. Goodman, Esq.
Engineer Chief Trial Attorney
Laura J. Arnett, Esq.
Anna F. Kutz, Esq.
Madeline Crocker, Esq.
Engineer Trial Attorneys
U.S. Army Engineer District, Savannah
OPINION BY ADMINISTRATIVE JUDGE MCILMAIL
Appellant, Odyssey International, Inc., appeals from (1) the May 2019 default
termination of its construction contract for failure to secure bonding (ASBCA
No. 62085), (2) the government’s assessment against Odyssey of $1.9 million in
allegedly excess reprocurement costs (ASBCA No. 62145), and (3) a related
Contractor Performance Assessment System (CPARS) evaluation rating Odyssey’s
performance “Unsatisfactory” (ASBCA No. 62193). The government requests
summary judgment in these consolidated appeals, contending, inter alia: (1) the
government acted within its discretion to terminate the contract for default and
Odyssey has not demonstrated that its failure to perform was excusable (ASBCA
No. 62085); (2) the government is entitled to the alleged excess reprocurement costs
(ASBCA No. 62145); and (3) the CPARS rating was properly issued and not arbitrary
and capricious or an abuse of discretion (ASBCA No. 62193). The Board has stayed
proceedings pending resolution of the motion, and the parties have not yet engaged in
any discovery.
STATEMENT OF FACTS FOR PURPOSES OF THE MOTION
The following is not in genuine dispute. On March 27, 2019, Odyssey and the
government contracted for appellant to construct an air traffic control tower for an Air
Force Base in North Carolina, for the amount of $19,832,000 (gov’t mot. at 3 ¶¶ 1, 6;
app. resp. at 3 ¶¶ 1, 6). The contract incorporates by reference Federal Acquisition
Regulation (FAR) 52.228-15, PERFORMANCE AND PAYMENT BONDS –
CONSTRUCTION (OCT 2010) (gov’t mot. at 3 ¶ 7; see app. resp. at 3 ¶ 7). The
contract provides that Odyssey submit performance and payment bonds to the
government within 10 days after award (gov’t mot. at 4 ¶ 8; see app. resp. at 3 ¶ 8).
The contract also incorporates by reference FAR 52.228-1, BID GUARANTEE
(SEP 1996), and FAR 52.249-10, DEFAULT (Fixed-Price Construction) (APR 1984)
(gov’t mot. at 4 ¶¶ 9-10; see app. resp. at 3 ¶¶ 9-10).
On April 10, 2019, Odyssey’s insurance agent wrote to Odyssey:
We have made vigorous efforts to market your account to
these standard-market sureties CNA, Great American,
Zurich, and NAS, and one of the leading specialty market
sureties, HCC Toyoko Marine. Even with the $1,000,000
capitalization from Whitney’s [Whitney McBride,
Odyssey’s principal shareholder (McBride decl. ¶ 1)] home
refinance, none of these sureties will bond the [] project.
The primary reason with each surety is way too little
working capital in the company. To support a
$40-50,000,000 backlog, the minimum working capital
number is $2,500,000, and usually that is with a hefty bank
line of credit and substantial net worth from personal
indemnitors. While your profit projections for 2019 are
very encouraging, it doesn’t fix working capital soon
enough for surety support on this size of work program.
Additionally, . . . [t]he potential Hub-Zone violation is a
big cloud until you are absolved of liability . . . .
(App. supp. R4, tab 24 at 30 (alterations added); gov’t mot. at 9 ¶ 46; see app. resp.
at 6 ¶ 46, 8 ¶ 8; gov’t reply at 6 ¶ 8) On April 16, 2019, one surety wrote to Odyssey’s
insurance agent:
Although the account is thin, the main reason we have to
pass on this is due to the Hub Zone investigation in place.
The law underlying the false claim (the false claim act) has
no individual Hub Zone designation which would mean the
company is subject to investigation. So even though the
FBI has indicated it is not focusing on the company, there
is still a potential that can occur and a surety who issues
any bonds for the company who after the fact is found are
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not what the claim to be (Hub Zone compliant) are subject
to triple damages.
We, as a company, have seen this in the past and will not
consider any requests with anything pending regarding
Hub Zone claims. We would not be willing to consider
anything for the account until this issue is completely
resolved.
(App. supp. R4, tab 30 at 40-41; see app. resp. at 8 ¶ 10; gov’t reply at 6 ¶ 10) On
April 22, 2019, Odyssey wrote to the contracting officer (CO) indicating Odyssey’s
inability to obtain performance and payment bonds (gov’t mot. at 4 ¶ 12; app. resp.
at 3 ¶ 12). On April 25, 2019, the CO issued a cure notice to Odyssey, requiring
Odyssey to produce performance and payment bonds by May 6, 2019 (gov’t mot. at 4
¶ 13; app. resp. at 3 ¶ 13).
On May 3, 2019, the CO received an email from Odyssey and a May 1, 2019
letter from Odyssey’s insurance agent, re-iterating Odyssey’s inability to obtain
performance and payment bonds for the contract (gov’t mot. at 4 ¶ 14; app. resp. at 3
¶ 14; see R4, tab 4.03). In the email, Odyssey indicated that it was willing to “waive
the time granted to cure” and that the government was “free to proceed in replacing
Odyssey International, Inc. as the contractor on the project” (gov’t mot. at 4 ¶ 14; app.
resp. at 3 ¶ 14 (addressing R4, tab 4.03)). In the letter from the insurance agent to the
CO, the insurance agent wrote:
In the summer of 2018, Odyssey was informed that their
former chief financial officer was a prime target in a
criminal investigation by the US Attorney’s Office. The
investigation is ongoing and involves a potential HUB
Zone violation by Odyssey and fraud by the former chief
financial officer. . . . With all the sureties we approached,
the “cloud” of this investigation materially impairs
Odyssey’s ability to obtain bonds on new projects until the
case is settled.
(R4, tab 4.03 at 265)
As of May 6, 2019, Odyssey had not provided to the government the
performance and payment bonds required by the contract for Odyssey to proceed with
performance of the contract (gov’t mot. at 5 ¶ 16; app. resp. at 4 ¶ 16). On May 6,
2019, the CO issued a notice terminating the contract for default for failure to provide
performance and payment bonds, “effective immediately upon receipt of this Notice”
(R4, tab 2.01; see gov’t mot. at 5 ¶ 16; app. resp. at 4 ¶ 16). On May 8, 2019, the CO
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issued a modification terminating the contract for default “in conjunction with the
Notice of Termination dated May 6, 2019” (R4, tab 5.01; see gov’t mot. at 5 ¶ 16; see
app. resp. at 4 ¶ 16).
DECISION
Summary judgment shall be granted if the movant shows that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a
matter of law. Avant Assessment, LLC, ASBCA No. 58867, 15-1 BCA ¶ 36,067
at 176,127 (citing FED. R. CIV. P. 56(a)). All significant doubt over factual issues must
be resolved in favor of the party opposing summary judgment, and we draw all
justifiable inferences in favor of the nonmoving party. DCX-CHOL Enterprises,
ASBCA Nos. 61806, 61807, 20-1 BCA ¶ 37,552 at 182,341. There is no dispute that
Odyssey failed to provide the bonds required by the contract; consequently, the
government is entitled to judgment as a matter of law in ASBCA No. 62085 that
Odyssey defaulted on the contract. Marshall’s Elec., Inc., ASBCA No. 59749, 16-1
BCA ¶ 36,300 at 177,017.
Otherwise, we are not persuaded that the government has met its burden, for at
least one reason. The government cites FAR 52.249-10 (mot. at 4 ¶ 10), which, at
paragraph (b), provides:
The Contractor’s right to proceed shall not be terminated
nor the Contractor charged with damages under this clause,
if . . . The delay in completing the work arises from
unforeseeable causes beyond the control and without the
fault or negligence of the Contractor. Examples of such
causes include . . . acts of the Government in either its
sovereign or contractual capacity . . . .
48 C.F.R. § 52.249-10 (1984) (emphasis added). The driving issue of the appeals
appears to be whether the reason Odyssey did not secure bonding was because it
lacked working capital or because it was the subject of a federal criminal investigation
into a potential “HubZone” violation (see gov’t mot. at 1-3; see app. resp. at 1-2). The
recitations set forth above demonstrate that, at this, pre-discovery stage, there is a
genuine dispute as to that material fact. Even the government appears to contribute to
that dispute by stating (gov’t reply at 10), “[n]o time extension would resolve this
situation since Odyssey is now the subject of impending criminal prosecution arising
from that investigation.”
The government also seems to say that even if the criminal investigation
contributed to Odyssey’s failure to obtain bonds, the default would not be excused (see
gov’t mot. at 2-3; see gov’t reply at 11-13). The parties’ briefing does not adequately
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address that issue. For example, the United States Court of Claims held in a different
but related context that:
Although it is well settled that the mere financial
incapacity of a contractor to perform is not a cause beyond
its control and without its fault or negligence, it is equally
well established that financial incapacity can be excusable
when it was precipitated by causes beyond the control and
without the fault or negligence of the contractor. This is a
fortiori true when the precipitating causes are acts or
omissions of the Government, the other contracting party.
Nat’l E. Corp. v. United States, 477 F.2d 1347, 1356 (Ct. Cl. 1973) (internal footnote
citations omitted). In another different but related context, that court also held:
[Plaintiff contractor] may not recover . . . [consequential]
damages which allegedly resulted when, because of [the
government’s] actions, the bonding company or others
refused to issue bonds on behalf of plaintiff on other
contracts or work, thus crippling the contractor’s ability to
obtain new contracts or new work. Even if proven, these
damages would be too remote and speculative to be
recoverable.
Olin Jones Sand Co. v. United States, 225 Ct. Cl. 741, 743-44 (1980) (alterations
added). And in another failure-to-bond case cited earlier in this opinion, we said,
without elaborating upon the implications of the sentence emphasized below (which
sentence the government quotes from, but only in its reply brief (reply at 9)):
Appellant has not shown that its default on this contract
was excusable. Accordingly, we find that the government
was justified in terminating this contract for default under
the Default clause of the contract. In addition, a
contractor’s failure to provide performance and payment
bonds is a breach of a condition that can support a default
termination. This is a separate and distinct ground for
default termination.
Marshall’s Elec., 16-1 BCA ¶ 36,300 at 177,017 (emphasis added) (citations omitted).
Finally, the government says that Odyssey defaulted by anticipatorily
repudiating the contract (gov’t reply at 17-18). The government having raised that
issue for the first time in its reply brief, we decline to address it further at this stage.
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See Buck Town Contractors & Co., ASBCA No. 60939, 18-1 BCA ¶ 36,951
at 180,059.
CONCLUSION
We find it unnecessary, at this stage, to address the parties’ other arguments.
The government is granted summary judgment in ASBCA No. 62085 that Odyssey
defaulted on the contract; otherwise, the government’s motion for summary judgment
is denied.
Dated: June 2, 2020
TIMOTHY P. MCILMAIL
Administrative Judge
Armed Services Board
of Contract Appeals
I concur I concur
RICHARD SHACKLEFORD OWEN C. WILSON
Administrative Judge Administrative Judge
Acting Chairman Vice Chairman
Armed Services Board Armed Services Board
of Contract Appeals of Contract Appeals
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I certify that the foregoing is a true copy of the Opinion and Decision of the
Armed Services Board of Contract Appeals in ASBCA Nos. 62085, 62145, 62193,
Appeals of Odyssey International, Inc., rendered in conformance with the Board’s
Charter.
Dated: June 2, 2020
PAULLA K. GATES-LEWIS
Recorder, Armed Services
Board of Contract Appeals
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