Ace Constructors, Inc. v. United States
78 Fed. Cl. 1357, 499 F.3d 1357, 2007 U.S. App. LEXIS 22309 (2007)
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Rule of Law:
When the government provides a contractor with defective specifications, it breaches an implied warranty that satisfactory performance will result from adhering to them, entitling the contractor to recover costs proximately flowing from its reasonable reliance on those specifications.
Facts:
- ACE Constructors, Inc. (ACE) entered into a contract with the U.S. Army Corps of Engineers (the government) to build an Ammo Hot-Load Facility at Fort Bliss, Texas.
- The government provided the architectural drawings and engineering specifications, which were incorporated into the contract.
- The contract specifications were ambiguous about the required concrete smoothness testing method, allowing for either a less expensive straightedge test or a more expensive profilograph test.
- ACE based its bid on using the less expensive straightedge method, but the government initially required performance using the more expensive profilograph method.
- The specifications also permitted a fixed-form paving technique, which ACE's bid was based upon, but the site's grade and contours made this method physically impossible, forcing ACE to use a more expensive slip-form technique.
- The government's plans also incorrectly indicated the project was 'balanced,' meaning the amount of earth to be excavated would be sufficient for the amount of fill needed.
- In reality, the site was significantly unbalanced, requiring ACE to procure an additional 129,000 cubic yards of fill soil at a substantial extra cost.
Procedural Posture:
- ACE Constructors, Inc. (ACE) submitted several claims for additional costs to the U.S. Army Corps of Engineers' contracting officer.
- The contracting officer denied some of ACE's claims.
- ACE appealed the contracting officer's adverse decisions to the United States Court of Federal Claims, which acts as the trial court for such disputes.
- Following a five-day trial, the Court of Federal Claims ruled in favor of ACE, awarding it an equitable adjustment of $1,383,009 and the return of $246,130 in liquidated damages.
- The United States (appellant) appealed the judgment of the Court of Federal Claims to the United States Court of Appeals for the Federal Circuit, with ACE as the appellee.
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Issue:
Does a government contractor's reasonable reliance on defective government-provided specifications, which results in increased performance costs, entitle the contractor to an equitable adjustment for those costs?
Opinions:
Majority - Newman, Circuit Judge
Yes. A government contractor's reasonable reliance on defective government specifications entitles it to an equitable adjustment for increased costs. The court applied the long-standing principle from United States v. Spearin, which establishes that when the government provides detailed specifications, it implicitly warrants that they are accurate and that satisfactory performance will result from following them. The government's argument that ACE, as an experienced contractor, should have known the specifications were defective and not relied on them was rejected. The court found that ACE's reliance on the specifications—for the testing method, paving technique, and earthwork calculations—was reasonable at the time of bidding. Therefore, the government breached its implied warranty and is liable for the additional costs ACE incurred as a direct result of the defective specifications.
Analysis:
This decision strongly reaffirms the government's liability for its own defective design specifications under the Spearin doctrine. It clarifies that the risk of such defects rests with the government, not the contractor, and a contractor's duty to investigate a site does not extend to discovering latent defects in the government's plans. The ruling protects contractors who reasonably rely on government-provided documents when preparing their bids, preventing the government from shifting the cost of its own errors onto contractors. This precedent solidifies a fundamental risk-allocation principle in public contracting, ensuring contractors are not required to price in contingencies for potential government design failures.
