Lake Charles Xxv, LLC v. United States , 2014 U.S. Claims LEXIS 1098 ( 2014 )


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  •      In the United States Court of Federal Claims
    No. 09-363C
    (Filed: October 15, 2014)
    **********************
    LAKE CHARLES XXV, LLC,
    Plaintiff,
    Contract Disputes Act; Excusable
    v.                                          delay; Notice of delay; Waiver;
    No-waiver clause; Bad Faith
    THE UNITED STATES OF AMERICA,
    Defendant.
    **********************
    Clinton Meyering, Taylor, MI, for plaintiff.
    Jeffrey D. Klingman, United States Department of Justice, Civil
    Division, with whom were Steven J. Gillingham, Assistant Director, Bryant G.
    Snee, Acting Director, and Stuart F. Delery, Assistant Attorney General,
    Washington, DC, for defendant.
    BRUGGINK, Judge.
    OPINION
    This is a breach of contract case brought pursuant to the Contract
    Disputes Act (“CDA”), 
    41 U.S.C. §§ 7101-7109
     (2012). The case concerns
    a contract to design, build, and then lease to the government an office building
    in Louisiana. Plaintiff is appealing the Contracting Officer’s (“CO”) decision
    to terminate the contract for default. Defendant counterclaimed, asking the
    court to award it reprocurement costs and liquidated damages for the delay in
    project completion. Defendant moved for partial summary judgment that the
    termination for default was proper because plaintiff’s delays were not excused
    and because plaintiff’s bad faith claim is unfounded. Plaintiff cross-moved for
    summary judgment that the termination was wrongful because all of the delays
    were beyond its control and because defendant had an ulterior motive for
    terminating the contract. The motions are fully briefed. We heard oral
    argument on May 7, 2014, during which we asked for supplemental briefing
    on a question raised for the first time during oral argument. Because plaintiff’s
    delays were not excused and because there is no evidence of bad faith, we
    grant defendant’s motion for partial summary judgment and deny plaintiff’s
    cross-motion.
    BACKGROUND
    The General Services Administration (“GSA”) awarded contract GS-
    07B-16093 to Carotex Development, Inc. (“Carotex”) on May 31, 2006.
    Carotex agreed to design, build, and then lease to GSA a 12,733 rentable-
    square-feet office building in Lake Charles, Louisiana for use by the Social
    Security Administration (“SSA”). The specifications for the building exterior
    and the general floor plan were agreed upon and set forth specifically in the
    lease. The design and construction of much of the interior, especially
    improvements and finish elements, was anticipated by the parties to be a more
    iterative process.
    The contract listed six steps for the design and construction of the more
    specific interior elements, which it termed “tenant improvements:” (1) the
    government would generate initial design intent drawings; (2) the government
    would finalize the design intent drawings and provide them to the lessor
    (contractor); (3) the lessor would create final working/construction drawings
    of the interior improvements in conformance with the design intent drawings;
    (4) the government would review the drawings, request any modifications,
    approve the drawings, and issue to the lessor the notice to proceed; (5) the
    lessor would construct the tenant improvements; (6) the government would
    inspect and then accept or reject the space. Def.’s App. 24 (solicitation for
    offers incorporated into the final contract).1
    The design intent drawings (“DIDs”) were “fully-dimensioned drawings
    of the leased space” and included information regarding finish elements such
    as furniture locations, telephone and data outlet locations, specifications for
    electrical and HVAC loads, and other “finish/color/signage selections.” 
    Id.
    This information was used by the lessor to prepare the construction drawings,
    1
    “Def.’s App.” refers to the appendix of documents submitted by defendant
    in support of its motion for partial summary judgment. It is paginated
    consecutively through all of the documents.
    2
    which added all of the “mechanical, electrical, plumbing, fire safety, lighting,
    structural, and architectural improvements scheduled for inclusion” into the
    building. 
    Id.
     Once the construction drawings were approved by GSA, it was
    to issue a notice to proceed, which would instruct the lessor to “obtain the
    necessary permits and . . . commence construction of the space.” 
    Id.
    In a separate, earlier section, the contract stated that the parties would
    incorporate the final DIDs into the contract by a Supplemental Lease
    Agreement (“SLA”). 
    Id. at 3
     (paragraphs 13 and 14). This would begin a 180-
    day clock for completion of construction and delivery of the building to
    GSA/SSA. 
    Id.
     After completion, the government would inspect the building,
    and, upon acceptance, the lease portion of the contract would begin with an
    annual rent of $287,766 for the first 10 years and $271,850 for five option
    years.
    The lease incorporated by reference 
    48 C.F.R. § 552.270-18
    , the FAR’s
    default-in-delivery clause for GSA leases.2 It provides in relevant part:
    (a) With respect to Lessor’s obligation to deliver the premises
    substantially complete by the delivery date, time is of the
    essence. If the Lessor fails to work diligently to ensure its
    substantial completion by the delivery date or fails to
    substantially complete the work by such date, the Government
    may by notice to the Lessor terminate this lease. . . . The
    Lessor and the Lessor’s sureties, if any, are jointly and severally
    liable for any damages to the Government resulting from such
    termination, as provided in this clause. . . .
    ....
    (d) The Government shall not terminate this lease under this
    clause nor charge the Lessor with damages under this clause, if
    (1) the delay in substantially completing the work arises from
    excusable delays, and (2) the Lessor within 10 days from the
    beginning of any such delay (unless extended in writing by the
    Contracting Officer) provides notice to the Contracting Officer
    2
    “FAR” refers to the Federal Acquisition Regulation codified at title 48 of
    the Code of Federal Regulations. The provisions that deal specifically with
    clauses to be added to GSA contracts are also referred to as the “GSAR.”
    3
    of the causes of delay. The Contracting Officer shall ascertain
    the facts and the extent of delay. If the facts warrant, the
    Contracting Officer shall extend the delivery date, to the extent
    of such delay at no additional costs to the Government. A time
    extension is the sole remedy of the Lessor.
    
    48 C.F.R. § 552.270-18
     (2014).3 “Notice” is defined in the same FAR clause
    as “written notice sent by certified or registered mail, Express Mail or
    Comparable service, or delivered by hand. Notice shall be effective on the
    date delivery is accepted or refused.” 
    Id.
     § 552.270-4(j).
    The lease also incorporated a clause defining “excusable delays” as
    (g) . . . delays arising without the fault or negligence of Lessor
    and Lessor’s subcontractors and suppliers at any tier, and shall
    include, without limitation:
    (1) acts of God or of the public enemy,
    (2) acts of the United States of America in either its
    sovereign or contractual capacity,
    (3) acts of another contractor in the performance of a
    contract with the Government,
    (4) fires,
    (5) floods,
    (6) epidemics,
    (7) quarantine restrictions,
    (8) strikes,
    (9) freight embargoes,
    (10) unusually severe weather, or
    (11) delays of subcontractors or suppliers at any tier
    arising from unforeseeable causes beyond the control and
    without the fault or negligence of both the Lessor and
    any such subcontractor or supplier.
    Id. § 552.270-4(g).
    3
    The omitted portions go on to more specifically detail what constitutes
    reprocurement costs to which the government would be entitled in the event
    of a delivery default.
    4
    On February 15, 2007, GSA issued the DIDs to Carotex. The parties
    did not, however, incorporate those drawings into the contract through an
    SLA. On May 7, 2007, Carotex, GSA, and Lake Charles XXV, LLC (“Lake
    Charles”) entered into Supplemental Lease Agreement No. 1 to substitute Lake
    Charles for Carotex.4 Then, on August 6, 2007, GSA issued the notice to
    proceed to Lake Charles. Def.’s App. 232. Contrary to the schedule as laid
    out by the contract, this was before Lake Charles generated and the
    government accepted the construction drawings. The record is silent as to the
    omission of those steps prior to GSA’s issuance of the notice to proceed.
    Shortly thereafter, in September 2007, the parties held a meeting to
    discuss various projects for which Carotex was the general contractor,
    including the Lake Charles project. Among the topics discussed were options
    for terminating the parties’ relationship amicably through sale of the contract
    to a third party. See id. at 233 (Letter of September 12, 2007 from Carotex to
    GSA regarding sale of the lease). That discussion did not stop the project from
    proceeding, however, and Lake Charles provided a proposed schedule on
    September 19, 2007. The schedule called for ultimate completion and delivery
    by February 28, 2008. It also provided for Lake Charles to obtain city
    construction permits by October 12, 2007. See id. at 236.
    Lake Charles proceeded in an effort to obtain necessary permits, but in
    an October 9, 2007 letter to plaintiff’s architectural subcontractor, the Fire
    Marshal notified plaintiff of deficiencies that required correction before a
    permit would be issued. Id. at 267-71.
    Apparently undeterred by the permitting problems, the parties adopted
    the schedule proposed by Victor Blackmon, a principal of Carotex and Lake
    Charles, by executing SLA No. 2 on November 8, 2007. The new official
    schedule promised a GSA site visit to inspect the concrete pour on November
    17, 2007, and maintained the delivery date of February 28, 2008. Id. at 272
    (SLA No. 2). GSA committed to seven site visits to inspect various steps in
    the construction process, the last of which was to be the smoke alarm
    inspection on February 6, 2008. Id. SLA No. 2 reaffirmed the requirements
    of the default in delivery clause incorporated by reference and stated, “[i]f
    progress is not made and the Lessor fails to prosecute the work with the
    diligence that will ensure its substantial completion by the delivery date or
    4
    Carotex and Lake Charles share common ownership, and GSA continued
    to deal with the same individuals after the contract transfer.
    5
    fails to substantially complete the work by such date, the Government may by
    notice to the Lessor terminate this lease.” Id. at 273.
    Manuel Montoya, GSA Project Manager, conducted the first site visit
    on December 3, 2007, and found that no construction activity had taken place,
    not even the concrete slab pour scheduled for November 17, 2007. As a result,
    GSA sent a cure notice to Mr. Blackmon, dated December 10, 2007, in which
    GSA warned plaintiff that it was in danger of violating the default delivery
    clause and that GSA was considering terminating plaintiff for default. Plaintiff
    was instructed to “present, in writing, any facts bearing on the question to
    Nancy Lopez, Contracting Officer, . . . within 10 days after receipt of this
    notice. Failure to present any excuses within this time may be considered as
    an admission that none exist.” Id. at 285 (December 10, 2007 cure notice).
    John Kimbrough of Lake Charles responded by letter to the CO, Nancy
    Lopez, on December 20, 2007.5 The letter claimed 56 days of rain-related
    delay. Plaintiff also claimed an unspecified amount of permitting delay,
    stating that the city of Lake Charles gave permission for ground work,
    including the concrete pour, but that vertical construction was not yet approved
    by the Fire Marshall. The letter concluded by promising that “a schedule
    update based on the above facts will be produced over the holidays and
    forwarded to you.” Def.’s App. 288 (December 20, 2007 letter from Lake
    Charles to GSA). That promise was not kept.
    Mr. Kimbrough provided another update to GSA by letter to Ms. Lopez
    on January 24, 2008. The letter stated that plaintiff had completed preliminary
    pad and site work, but rain had brought work to a standstill, preventing
    addition of the last six inches of fill dirt. This was impossible, according to
    Mr. Kimbrough, because the fill pit was too wet to be of use until it dried out.
    Once the pit was back in service, the fill could be completed and the frame for
    5
    Mr. Kimbrough sent the letter to Ms. Lopez as an attachment to an email.
    Also included in that email were pictures, dated December 17, of ground/site
    work in preparation for vertical construction. The email also stated that “[w]e
    need to know who is going to pull the contractors license on this site, so we
    can start getting electricians and plumbers signed and on site right after
    Christmas.” Pl.’s Ex. N. It is unclear from the email who he was referring to
    by the pronoun “we,” but it suggests that, as of December 20, Lake Charles did
    not yet have some of its subcontractors in place to begin construction.
    6
    the slab laid. In anticipation of that work being completed, the letter stated
    that Lake Charles had ordered the building to be placed on the pad. Pl.’s Ex.
    N.6 Mr. Kimbrough’s letter concluded that he would provide a further update
    in the next week.
    An internal government email chain updating various SSA and GSA
    officials on the status of the Lake Charles and other Carotex-associated
    projects, dated February 15, 2008, summarized the Lake Charles situation and
    the lack of progress, while reflecting that the CO would request further
    documentation in support of plaintiff’s claim of delay. The estimated
    completion date was August 2008 with SSA occupancy in September 2008.
    Pl.’s Ex. H.
    Referencing a site visit conducted on March 6, 2008, GSA sent Mr.
    Blackmon a second show cause notice by letter dated March 13, 2008. In it,
    GSA stated that the March 6 inspection revealed “no completed work” at the
    site and that “no letter of delay or revised dates [had been] received from Lake
    Charles.” Def.’s App. 293. The letter noted that Lake Charles had missed the
    delivery date and failed to respond to several inquiries made by the CO in
    January 2008 after plaintiff’s promise to send an updated schedule. The letter
    informed plaintiff that GSA was considering terminating the contract for
    default and instructed Lake Charles to submit in writing within 10 days any
    facts bearing on the question of whether the delays were plaintiff’s fault.
    On March 20, 2008, Lake Charles received the permit from the city to
    begin vertical construction. Mr. Blackmon responded to the GSA cure notice
    shortly thereafter by letter, claiming that Lake Charles had experienced, “no
    less than 65 days of excusable delay of which GSA had actual notice.” Def.’s
    App. 298 (March 24, 2008 letter from Lake Charles to GSA). Mr. Blackmon
    further referenced the December 20, 2007 letter in which Mr. Kimbrough had
    informed GSA of 56 days of weather-related delay. The letter does not explain
    how or when the additional nine days of delay arose. The March 24 letter went
    on to remind GSA of Lake Charles’ efforts to obtain necessary permits, citing
    a wait of more than four months to obtain the Fire Marshall’s approval. Id.
    Mr. Blackmon rejected GSA’s assertion that Lake Charles had failed to
    provide lease-required updates at 30, 60, and 90 percent project completion
    6
    “Pl.’s Ex.” refers to exhibits attached to plaintiff’s Response and Cross-
    Motion for Summary Judgment. Each document is paginated individually.
    7
    because the project was only at an estimated 19 percent state of completion.
    Id. at 299. As to Lake Charles’ alleged failure to hold bi-weekly telephone
    conferences and submit other informal updates, Mr. Blackmon listed several
    attempts to set up conference calls, which allegedly were met with silence
    from GSA, and a January 28 update provided to GSA by letter.7 The letter
    closed with a statement of plaintiff’s disappointment in GSA’s management
    of the project and cited GSA’s failure to execute an SLA incorporating the
    DIDs. Attached to the letter was an updated schedule that reflected delivery
    of the building on August 21, 2008. See id. at 301-302 (revised construction
    schedule attached to March 24 letter).
    Rather than accept the August completion date, GSA terminated
    plaintiff for default by letter dated June 5, 2008, citing GSA regulation
    552.270-18 (
    48 C.F.R. § 552.270-18
    ), incorporated into the contract by
    reference. The termination notice listed the failure to meet deadlines agreed
    to in SLA No. 2.8 It also noted that the CO had sent the Notice to Proceed on
    August 6, 2007, almost a year before Lake Charles’ latest proposed completion
    date. The CO further stated that she had considered Mr. Blackmon’s March
    24 response to the cure notice but found it insufficient to establish excusable
    delay. Def.’s App. 307-12. The notice warned plaintiff that the government
    was entitled to the difference in rent and other costs if the replacement lease
    was more expensive, along with administrative costs for reprocurement.
    Def.’s App. 311.
    In response, Lake Charles submitted a certified claim to the CO, dated
    July 29, 2010. In it, plaintiff claimed the termination for default was wrongful
    for three reasons: (1) the government delayed in providing DIDs, the final of
    which were provided 246 days after contract award; (2) GSA exercised bad
    faith by enticing plaintiff to enter into a no cost termination in September
    2007, and, when plaintiff did not agree, demanding an unreasonably short
    construction schedule; and (3) plaintiff experienced 84 days of rain delay. See
    Def.’s App. 313-15. Plaintiff claimed $2,877,660 in unpaid rent for the first
    7
    Mr. Blackmon may have been referencing the letter from Mr. Kimbrough to
    Nancy Lopez that was dated January 24, but the record is not clear.
    8
    The notice also listed as a reason for termination a failure to complete the
    project within 180 days after the DIDs were incorporated by SLA. We note
    that this was an invalid basis for termination because the DIDs were never
    incorporated by SLA into the contract.
    8
    ten years of the lease and $2,877,660, the residual value of the property if the
    building been finished.
    The CO denied the claim by written decision on May 20, 2011. She
    rejected the claim for delay in providing the DIDs because plaintiff entered
    into SLA No. 2 after the date at which it alleged the government should have
    provided the DIDs, thereby agreeing to a new schedule and waiving any delay
    claim. The CO rejected the allegation of bad faith arising out of the
    government’s proposal of a no cost termination because (1) it occurred prior
    to the execution of SLA No. 2 and was thus waived, (2) the offer of an
    amicable no-cost termination is permitted by law, and (3) the construction
    schedule entered into after the September 2007 meeting was developed and
    proposed by plaintiff. The allegation of weather delays was denied because
    delays prior to November 7, 2007, were waived by execution of SLA No. 2
    and because plaintiff failed to follow the contract’s excusable delay clause,
    which requires proof that the weather was “severe” and that it actually
    prevented Lake Charles from working on the project. The CO also noted that
    plaintiff’s communiques regarding weather delay lacked any supporting
    information and none were submitted within the contractual notice period.
    The CO noted that the government would be assessing reprocurement costs
    and liquidated damages.
    Plaintiff filed suit here on June 4, 2009. It simultaneously filed three
    other complaints involving similar contracts won by Carotex, or associated
    companies, and terminated by the government for default. See Am. Govt.
    Props. & New Iberia SSA, LLC v. United States, No. 09-131C; Am. Govt.
    Props. & Houma SSA, LLC v. United States, No. 09-153C; Terrytown SSA,
    LLC v. United States, No. 09-364. Two of those complaints have been
    dismissed because plaintiff ran afoul of the Contract Act’s prohibition against
    assignment of contracts. See Am. Govt. Props. v. United States, No. 09-153C,
    
    2014 WL 4248193
     (Fed. Cl. Aug. 28, 2014); Am. Govt. Props. v. United
    States, No. 09-153C (Fed. Cl. Aug. 28, 2014) (order granting defendant’s
    motion to dismiss).
    The complaint in this action, as amended on June 16, 2011, contains
    three counts. The first is that the termination was wrongful because GSA did
    not account for its own failure to timely submit final DIDs and because it
    failed to account for the permitting and weather delays for which plaintiff was
    not responsible. The second count is that GSA breached the lease by delaying
    the DIDs and failing to consider the other delays to have been excused. The
    third and final count alleges bad faith on the part of GSA as evidenced by the
    9
    above referenced conduct and due to an abdication by the CO of her duties.
    The government answered and has counterclaimed for its costs in procuring
    a new facility, the difference between the costs of the old project and the new
    facility, and liquidated damages for the delay in completion of the SSA
    facility.
    Defendant now asks for summary judgment that the termination was
    proper and that GSA did not act in bad faith. Defendant argues that plaintiff’s
    delay claims are unfounded because it failed to give the contractually-required
    notice within 10 days of experiencing the delay, that, even with 84 days of
    delay, plaintiff still could not have met the contract completion date, and that,
    even if plaintiff is allowed to claim delay, there is no evidence that it was
    excusable. Defendant also argues that plaintiff’s bad faith claim must fail
    because there is no evidence of a specific intent to harm plaintiff.
    Plaintiff responded and cross-moved for summary judgment that the
    termination was wrongful. It argues that GSA failed to timely incorporate
    DIDs by means of a SLA and failed to complete a review of the construction
    drawings, two duties which it asserts were preconditions to GSA issuing a
    notice to proceed. The notice to proceed that was issued on August 7, 2007,
    was thus ineffectual to start the 180-day clock, according to plaintiff. The
    import of plaintiff’s argument is that its duty to proceed under the contract
    never arose and thus it could not have been in breach when defendant
    terminated it for default.
    In its responsive briefing and at oral argument, defendant contended
    that plaintiff cannot rest on the contract’s original requirements as
    preconditions to its performance because those requirements were superceded
    by the mutually agreed upon SLA No. 2, and thus plaintiff waived the ability
    to insist on rights derived from the original terms of the contract. At oral
    argument, plaintiff replied to this argument by citing the contract’s “no waiver
    clause,” which plaintiff argues has the legal effect of preserving its ability to
    claim the original contract’s provisions requiring a timely DID SLA and
    review of construction drawings prior to GSA issuing a notice to proceed.
    After oral argument, the court asked for and received supplemental briefing on
    the legal effect of the clause.
    With respect to its bad faith contention, plaintiff responds that specific
    intent to injure Lake Charles can be inferred from defendant’s pressure on
    plaintiff in September 2007, in this case and the three related cases, either to
    enter into a no-cost termination or a too-short construction time line. Plaintiff
    10
    alleges for the first time that the real reason GSA terminated the lease was
    because it no longer desired to have the SSA facility located in the Lake
    Charles area. Plaintiff cites the depositions of Victor Blackmon, James
    Barton, and Greg Barton as evidence. Plaintiff believes that the course of
    dealing and the harsh construction schedule establish a pattern of practice by
    GSA rising to the level of specific intent to injure Lake Charles.
    DISCUSSION
    We have jurisdiction under the Contract Disputes Act to review final
    decisions of contracting officers. 
    41 U.S.C. § 7104
     (2012). We review them
    de novo as provided in the statute. 
    Id.
     § 7104(b)(4). Summary judgment is
    appropriate when the record presented shows that there is no genuine issue of
    material fact in dispute, and thus the moving party is entitled to judgment as
    a matter of law. Rule 56(c) of the Rules of the United States Court of Federal
    Claims; Anderson v. Liberty Lobby, Inc., 
    447 U.S. 242
    , 248 (1986).
    I. Plaintiff’s Condition Precedent Argument And The Effect Of The No
    Waiver Clause
    We begin with the question of whether the “no waiver” clause
    preserved plaintiff’s argument that it had no duty to begin or finish
    construction because GSA’s notice to proceed was ineffectual, which plaintiff
    terms “the condition precedent argument.” In other words, plaintiff believes
    GSA’s incorporation of final DIDs in a SLA and review of the construction
    drawings were preconditions to the government issuing a notice to proceed
    (from which point the contract’s 180-day completion window would begin).
    Because those things did not happen, the notice to proceed sent on August 7,
    2007, had no effect on plaintiff’s rights or duties under the contract, per
    plaintiff.
    Defendant counters by pointing to the adoption of the new schedule in
    SLA No. 2 (November 8, 2007), in which the parties agreed to proceed, with
    final completion on February 28, 2008. This, according to defendant,
    supercedes the scheduling requirements of the original terms of the contract,
    and plaintiff, by signing it, waived any argument based on the original
    schedule.
    Plaintiff replied to that assertion at oral argument by pointing to a
    clause incorporated by reference into the contract which states:
    11
    No failure by either party to insist upon the strict performance
    of any provision of this lease or to exercise any right or remedy
    consequent upon a breach thereof, and no acceptance of full or
    partial rent or other performance by either party during the
    continuance of any such breach shall constitute a waiver of any
    such breach of such provision.
    
    48 C.F.R. § 552.270-26
     (2014). Thus, in plaintiff’s view, its execution of SLA
    No. 2 could not have waived the right to rely on the government’s failure to
    incorporate DIDs by SLA or perform a final review of construction drawings
    as a defense to the government’s assertion of a lack of progress.
    Plaintiff recognizes that no-waiver clauses are themselves generally
    waiveable, see, e.g., Wis. Elec. Power Co. v. Union Pac. R.R. Co., 
    557 F.3d 504
    , 508 (7th Cir. 2009), but it cites the Federal Circuit’s decision in Long
    Island Savings Bank, FSB v. United States, as an example of the court’s
    recognition of the enforceability of such clauses in this circuit. 
    503 F.3d 1234
    ,
    1253 (Fed. Cir. 2007). Plaintiff also quotes this court’s 2010 decision in
    Public Service Co. v. United States, in which we stated that there was no
    precedent binding on this court holding that a no-waiver clause could be
    waived. 
    91 Fed. Cl. 363
    , 369 (2010). Plaintiff further argues that 
    48 C.F.R. § 552.270-26
     is required to be included in the contract by law, the import of
    which, according to plaintiff, is that it had a binding effect on the parties and
    could not be waived.
    The government answers in two ways. Defendant first points out that
    the Federal Circuit has on two occasions declined to issue a rule that no-waiver
    clauses are unwaiveable, instead finding that the particular facts of each case
    did not warrant a knowing waiver in the face of a such a clause. See Long
    Island Sav. Bank, 
    503 F.3d at 1253
    ; Westfeld Holdings, Inc. v. United States,
    
    407 F.3d 1352
    , 1361 (Fed. Cir. 2005). Defendant also notes language from
    our decision in Public Service Co. wherein we stated that, to the extent those
    two Federal Circuit cases contemplated the possibility of waiver of no-waiver
    clauses, they required “strong evidence of implied waiver,” something found
    in neither case. Pub. Serv. Co., 91 Fed. Cl. at 368. Defendant argues that the
    execution of SLA No. 2 is exactly the sort of strong evidence required to meet
    the hurdle of proving the waiver of a no-waiver clause.
    Defendant’s second response to the “no-waiver” argument is based on
    the terms of the clause itself. Defendant argues that “waiver of any right to
    insist on a notice to proceed or a supplemental lease incorporating the design
    12
    intent drawings does not arise from a failure to insist upon performance of any
    provision to which this clause in theory might apply.” Def.’s Supp. Br. 2.
    Instead, the waiver results from plaintiff’s “affirmative abandonment of any
    such right.” Id. at 3. That affirmative abandonment is evidenced by plaintiff’s
    generation of construction drawings and start of construction despite not
    having a DID-incorporating SLA and the execution of SLA No. 2. Thus the
    no-waiver clause could, if it has any effect at all, only serve to preserve
    plaintiff’s right to bring a breach claim for the lack of a DID SLA, according
    to defendant. That, however, could not, in defendant’s view, trump the
    material breach by failure to timely deliver the project. We agree.
    The terms of the clause do not operate to prevent a knowing
    abandonment of a contract right. Plaintiff knew the performance it was owed
    under the original terms of the contract prior to GSA’s issuance of a notice to
    proceed. It did not receive that performance. Instead, as is often the case in
    construction contracts, the parties negotiated a new set of performance
    obligations and amended the contract with SLA No. 2. Plaintiff failed to meet
    those new obligations and was terminated under the contract’s default
    termination clause. That termination may or may not have been proper
    depending on the cause of the delay and whether plaintiff met the contract’s
    requirements for asserting that the delay was not its fault. Plaintiff cannot,
    however, claim that it had no duty to perform when it agreed in writing to a
    new set of performance obligations which superceded the parties’ earlier
    agreement. In other words, defendant no longer had an obligation to
    incorporate the DIDs by amendment or review and approve construction
    drawings prior to issuing a notice to proceed when plaintiff materially
    breached the contract. In fact, the issuance of a notice to proceed and the
    contract’s 180-day performance period after the notice were no longer of any
    importance after SLA No. 2. The parties superceded those obligations by
    agreeing to a wholly new schedule, one that plaintiff did not meet.9
    9
    Plaintiff also contends that the no-waiver clause is a statutory or regulatory
    requirement. We assume plaintiff’s argument is premised on the clause’s
    prefatory language: “As prescribed in 570.703, insert the following clause.”
    
    48 C.F.R. § 552.270-18
    . FAR part 570.703 lists, among others to be included
    in GSA contracts for leasehold interests, the no-waiver clause. The regulation
    also provides, however, that the CO may choose not to include any of the
    listed clauses if he “determines that the clause is not appropriate.” 
    48 C.F.R. § 570.703
    (a) (2014). We are aware of no legal authority that a clause that may
    (continued...)
    13
    Further, assuming arguendo that the no-waiver clause was not itself
    waived by plaintiff’s agreement to SLA No. 2 or its subsequent conduct, it is
    inapposite here. The clause states that “no failure by either party to insist upon
    the strict performance of any provision . . . shall constitute a waiver of any
    such breach of such provision.” 
    48 C.F.R. § 552.270-26
    . As defendant points
    out, by its terms, the clause could only preserve plaintiff’s right to assert
    defendant’s alleged failure to furnish DIDs. No court has held that such a
    provision shields one party from the consequences of its own material breach
    simply because the other party was guilty of a prior non-material breach.
    Defendant terminated plaintiff for default after it suffered a total breach. Had
    defendant not terminated, the no-waiver clause would have preserved the
    government’s right to assert delay damages despite accepting performance
    after the breach. In this case, however, even if plaintiff retained in theory its
    right to assert defendants’s failure to incorporate DIDs or review construction
    drawings prior to the issuance of a notice to proceed, such an argument would
    be moot in light of the parties’ subsequent agreement and plaintiff’s total
    breach. The assertion would be of no legal consequence.
    II. Plaintiff’s Delays Were Not Excused Because Plaintiff Did Not Provide
    Timely Notice To The Contracting Officer
    Because we hold that plaintiff was obligated to perform according to the
    schedule it agreed to in SLA No. 2, we must now consider whether its failure
    to perform was excused. We find that it was not.
    Plaintiff claims three primary excusable delays: GSA’s failure to timely
    issue and incorporate the DIDs followed by a notice to proceed, delays in
    obtaining permits due to action or inaction of the state Fire Marshal, and
    extreme weather (rain). If those delay claims are well-founded, defendant’s
    termination for default may have been improper because Lake Charles’ failure
    to meet the delivery deadline was allegedly not its fault. Defendant challenges
    plaintiff’s delay claims as unfounded because plaintiff failed to notify the CO
    within 10 days of when they commenced and because plaintiff has not alleged
    how the delays, even assuming they were not plaintiff’s fault, affected the
    critical path of construction, meaning that they were not the cause of plaintiff’s
    (...continued)
    be omitted at the CO’s discretion may not later be waived or superceded by
    subsequent agreement of the parties.
    14
    failure to complete the project in time.10
    In order for delay to be excused, the contract’s delay clause requires
    that “the Lessor within 10 days from the beginning of any such delay (unless
    extended in writing by the Contracting Officer) provide[] notice to the
    Contracting Officer of the causes of delay.” Def.’s App. 201; 
    48 C.F.R. § 552.270-18
    . This means that, if the contractor experiences delay not of its own
    making, it must provide notice to the CO within 10 days of experiencing the
    delay or the contractor risks being held responsible for that delay.
    Plaintiff does not assert that it provided written notice within 10 days
    after the beginning of the delay. Instead, it argues that, because GSA did not
    issue a notice to proceed after incorporation of DIDs by SLA, it had no duty
    to perform, and thus any delay is the government’s fault.
    Plaintiff’s reliance on the fact that GSA departed from the order of
    events originally contemplated by the parties is an ineffectual response. At the
    time, plaintiff did not object to the August 6, 2007 notice to proceed as
    triggering its duty to complete construction within 180 days. Then on
    September 19, 2007, plaintiff, through Mr. Blackmon, proposed a new
    schedule with a February 28, 2008 completion date, plainly ignoring any past
    duties of the government. That new date was adopted by amendment to the
    contract in SLA No. 2 on November 8, 2007. The new schedule included a
    variety of milestones, including permitting deadlines, a concrete pour, and
    regularly scheduled site inspections by GSA. The adoption of SLA No. 2 was,
    in effect, a new notice to proceed, and one which ignored defendant’s asserted
    failure to incorporate the DIDs into a SLA and approve plaintiff’s construction
    drawings. Any conditions precedent contemplated under the original schedule
    10
    We note also that, as this is a CDA claim, plaintiff is limited to a review of
    the decision of the CO. Although our review of the CO’s decision is de novo,
    plaintiff is limited to the facts and arguments it put in front of the CO in its
    certified claim. Scott Timber Co. v. United States, 
    333 F.3d 1358
    , 1365 (Fed.
    Cir. 2003). Although that standard does not require “rigid adherence to the
    exact language” of the claim to the CO, it must be “arise from the same
    operative facts” and claim “essentially the same relief.” 
    Id.
     Delay based on
    permitting difficulties is not based on the same operative facts as one based on
    weather or the late issuance of DIDs. Plaintiff did not make a claim to the CO
    for delay based on permitting delays.
    15
    were superceded by SLA No. 2, were no longer in force,11 and cannot
    constitute an excuse for plaintiff’s failure to give notice of the alleged delay.12
    We note that neither our predecessor, the Court of Claims, nor the
    Federal Circuit has had occasion to construe this particular notice provision or
    the FAR’s more general construction contract provision at part 52.249-10. See
    R.P. Wallace, Inc. v. United States, 
    63 Fed. Cl. 402
    , 417 (2004). We recognize
    that the general rule in applying contract notice provisions is that they should
    be applied liberally. See generally Hoel-Steffen Constr. Co. v. United States,
    
    197 Ct. Cl. 561
    , 573 (1972) (holding that the notice provision of a contract-
    adjustment clause not be applied “too technically and illiberally where the
    Government is quite aware of the operative facts”) (citing Copco Steel &
    Eng’g Co. v. United States, 
    169 Ct. Cl. 601
    , 616 (1965)). The requirement is
    not meaningless, however, because giving notice within ten days allows an
    investigation contemporaneous with the events. This comports with the Court
    of Claim’s instruction in Hoel-Steffen, where the court declined to construe the
    contract-adjustment clauses’ notice provision strictly against the contractor
    when the agency was aware of the circumstances due to a request from the
    contractor for a time-extension under a different contract provision. Id.; see
    also R.P. Wallace, 63 Fed. Cl. at 417-18 (rejecting the government’s late
    notice argument because the contractor did not reasonably know of the cause
    of the delay until seven days before it provided the Navy with notice). In this
    case, the record does not reflect the government’s independent knowledge of
    11
    As explained earlier, the contract’s no-waiver clause could, at most, preserve
    a claim for damages that plaintiff might have resulting from government-
    caused delay prior to SLA No. 2, if it was not actually waived by SLA No. 2
    and plaintiff’s subsequent conduct.
    12
    Defendant also argued in its motion for summary judgment that plaintiff’s
    delay claims must be rejected because the alleged delays had no effect on the
    critical path of construction. This is because they were either endured prior to
    SLA No. 2, the DID delay, or because the ill weather suffered was almost
    entirely before plaintiff obtained the necessary city permit to begin vertical
    construction on March 20, 2008 (3 weeks after the contract’s completion date).
    Although the record appears to support defendant in this regard, we do not
    reach these issues as they are not necessary to our decision. Plaintiff failed to
    notify the CO of its delays within the time required by the contract. It
    therefore bore the risk that, if the project was not substantially completed by
    the contract-anticipated date, it could be held responsible for that failure.
    16
    the problems facing plaintiff or that notice was constructively provided by
    other means.13
    In sum, defendant was within its rights to insist on timely notice, and
    notice was not provided. We hold that plaintiff cannot now assert delay as a
    defense to non-performance.
    III. Plaintiff Cannot Show Bad Faith On The Part Of The Government
    Defendant also challenges plaintiff’s bad faith claim as doomed to fail
    because the record does not support any showing of bad faith on the part of
    GSA or other government personnel. Defendant begins with the law’s
    presumption that government officials act in good faith. See Road & Highway
    Builders, LLC v. United States, 
    702 F.3d 1365
    , 1368 (Fed. Cir. 2012). It is a
    “high burden . . . to overcome this presumption, amounting to clear and
    convincing evidence to the contrary.” 
    Id.
     GSA’s actions in administering the
    contract were consistent with the contract’s requirements, which cannot be
    evidence of bad faith. Furthermore, there is no evidence of a specific intent to
    injure plaintiff on the part of anyone involved at GSA.
    Plaintiff’s chief argument is that GSA’s attempt to force plaintiff to take
    a no-cost termination prior to SLA No. 2 evidences bad faith. Plaintiff cites
    the deposition of Mr. Blackmon, who believes he was “ambushed” at the
    September 7, 2007 meeting, during which agency officials raised the
    possibility of termination. See Pl.’s Ex. A at 151-57. He believes that this
    surprise attempt to force a no-cost termination was then used to pressure
    plaintiff to accept an overly-aggressive new schedule, which was adopted in
    SLA No. 2. Plaintiff also argues that GSA’s actions in all four leases
    involving Carotex establishes a pattern and practice of bad faith conduct. It
    points to GSA’s cure notices, which, according to Mr. Blackmon, would
    obligate critical personnel to make a response when they could have been
    working on project completion. See 
    id. at 201-202
    . Plaintiff also cites an
    internal government email discussing the Carotex projects and the February
    2008 cure notice, which states that GSA was developing “an action plan to put
    more pressure on Carotex.” Pl.’s Ex. J (February 5, 2008 email from Jim
    13
    The CO, Nancy Lopez, testified that she was unaware of the weather at the
    location until she received the letters from Mr. Blackmon and Mr. Kimbrough.
    Pl.’s Ex. C at 23-24 (Dep. of Nancy Lopez). We note also that the GSA office
    where Ms. Lopez and others worked is located in Forth Worth, TX.
    17
    Weller, GSA Regional Administrator, to Ramona Schuenmeyer, SSA Regional
    Administrator).
    Plaintiff suggests that GSA had an independent agenda of looking for
    an excuse to terminate a number of construction contracts for SSA offices.
    Plaintiff offers the deposition testimony of brothers D. James Barton and Greg
    Barton, who testified that they, through their company Genesis, attempted to
    negotiate replacement leases in all four locations in which GSA had terminated
    contracts with plaintiff or its affiliates. Pl.’s Exs. K & L (Deps. of James and
    Greg Barton). Those offers were declined by GSA, allegedly because GSA no
    longer desired SSA offices in those locations. They contend that no offices
    were ever built in the vicinity of any of the four terminated leases. Plaintiff
    does not claim that the CO who terminated the contract at issue was aware of
    these motives, only that she was acting under the direction of superiors at GSA
    who were pursuing a hidden agenda.
    None of these allegations, if credited, would justify a finding that the
    government operated in bad faith. The record is utterly silent as to any
    statement by a GSA official indicating a desire to build elsewhere.
    Nevertheless, even if GSA was not interested in pursuing SSA locations in the
    places originally selected, the question remains, did it have the right to
    terminate this contract. If it did, the fact that it made a termination for
    convenience unnecessary is not proof of ill will or a desire to harm plaintiff.
    The GSA internal email chain merely reflects routine contract
    administration concerns during the early part of 2008 as it became apparent
    that plaintiff would not meet the delivery date. The agency was acting in its
    legitimate interest in pressuring plaintiff to perform. Termination was
    discussed but only as a result of Carotex’s inability to deliver the building.
    The actions of GSA in suggesting a no-cost termination in September
    2007 may have been a surprise to Mr. Blackmon, but that establishes nothing
    other than his reaction to the suggestion. GSA foresaw problems with the
    project and offered an exit to plaintiff, which plaintiff chose not to take. That
    Mr. Blackmon and others at Carotex or Lake Charles felt pressured to accept
    a short schedule is a reflection of circumstances at the time. The contract was
    way behind schedule, but plaintiff wanted to proceed, and itself proposed the
    accelerated schedule which GSA accepted. Nothing in that chain of events
    rises to the level of bad faith on the part of the government. In short,
    defendant is entitled to summary judgment on this claim because there is no
    material fact in dispute with regard to GSA’s actions. They were all consistent
    18
    with its contract rights.
    CONCLUSION
    Defendant has shown that there are no issues of material fact in dispute.
    Plaintiff’s delay claim fails because plaintiff did not present those delays to the
    CO within 10 days of the start of the delay. Plaintiff does not argue that it
    provided the required notice or that GSA waived its right to insist upon timely
    notice. Plaintiff thus had a duty to begin construction and complete it
    according to the schedule in SLA No. 2. Plaintiff failed to do so. This
    establishes the propriety of GSA’s termination for default. Plaintiff’s assertion
    of bad faith on the part of the government is without merit. Accordingly,
    defendant’s motion for partial summary judgment is granted; plaintiff’s cross-
    motion for partial summary judgment is denied. Entry of judgment is deferred
    pending resolution of defendant’s counterclaim for reprocurement costs and
    liquidated damages.
    s/ Eric G. Bruggink
    ERIC G. BRUGGINK
    Judge
    19
    

Document Info

Docket Number: 1:09-cv-00363

Citation Numbers: 118 Fed. Cl. 717, 2014 U.S. Claims LEXIS 1098, 2014 WL 5180797

Judges: Bruggink

Filed Date: 10/15/2014

Precedential Status: Precedential

Modified Date: 11/7/2024