H.B. Mac, Inc. v. United States
42 Cont. Cas. Fed. 77,357, 153 F.3d 1338, 41 Fed. Cl. 1338 (1998)
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Rule of Law:
A contractor cannot claim an equitable adjustment for a Type I differing site condition if the conditions encountered were reasonably foreseeable based on all information available to a reasonable and prudent contractor at the time of bidding, irrespective of the contractor's status as a small disadvantaged business.
Facts:
- On July 31, 1991, the United States Army Corps of Engineers (the Corps) awarded H.B. Mac, Inc. (Mac), a small disadvantaged business, a $6,281,000 contract to construct a reinforced concrete motor vehicle maintenance facility and a separate wash rack facility at Fort Shafter on Oahu, Hawaii.
- The project site, Fort Shafter Flats, is located about 700 yards from the Pacific Ocean and Keehi Lagoon, with various small streams flowing nearby, creating conditions for highly variable subsurface soils.
- Contract documents provided bidders with eight logs of soil borings, which varied in depth and showed limestone, sands, and gravels, with a water table around twelve feet, but these borings were clustered around the maintenance facility, approximately 300 yards from the wash rack facility where an oil/water separator tank was to be built.
- Mac began construction in August 1991 and successfully excavated a sedimentation basin at the wash rack facility to about fourteen feet using temporary shoring, encountering only nuisance water and subsurface conditions similar to those in the distant borings.
- Around October 17, 1992, Mac began excavating for the oil/water separator tank, planning for an excavation not exceeding sixteen feet, and encountered a black silty, clay material at seven feet, which continued down to between thirteen and fourteen feet.
- At the thirteen to fourteen-foot level, Mac encountered soil saturated with groundwater, and the excavation walls began collapsing, leading to the failure of temporary shoring and subsequent collapse despite attempts to reslope the sides.
- During excavation for the oil/water separator tank, Mac never encountered a thick layer of limestone similar to what was indicated in the borings from the area of the maintenance facility, and was forced to abandon and refill the excavation.
- Corps geologist Eric Bjorken and engineer Olson Okada visually examined a soil sample from the backfilled excavation and concluded that sheet pile shoring and bracing would be required for the oil/water separator tank excavation.
Procedural Posture:
- H.B. Mac, Inc. encountered unexpected soil conditions during excavation for an oil/water separator tank and notified the Corps, claiming a differing site condition.
- On November 3, 1992, the Contracting Officer’s Authorized Representative denied Mac's request for additional compensation.
- By letter dated December 4, 1992, Mac submitted a certified claim to the contracting officer under the Contract Disputes Act, which was deemed denied pursuant to 41 U.S.C. § 605(c) when the contracting officer failed to respond.
- On February 12, 1993, Mac filed a complaint in the United States Court of Federal Claims, challenging the denial of its claim for an equitable adjustment and asserting a Type I differing site condition.
- The Court of Federal Claims held a week-long trial and subsequently ruled that Mac had proven all elements of a Type I differing site condition by a preponderance of the evidence.
- The Court of Federal Claims awarded Mac $103,365.60, plus interest, for direct costs and delay/impact costs, entering final judgment on December 31, 1996.
- The United States appealed the Court of Federal Claims' final judgment.
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Issue:
Does a contractor establish a Type I differing site condition entitling it to an equitable adjustment when it encounters unstable soil and groundwater requiring sheet pile shoring at a site distant from provided boring logs, especially when the contractor did not conduct a pre-bid site visit and a reasonable contractor would have foreseen the need for such shoring due to excavation depth below the water table near geological features like an ocean and streams?
Opinions:
Majority - Schall, Circuit Judge
No, a contractor does not establish a Type I differing site condition entitling it to an equitable adjustment if the encountered conditions were reasonably foreseeable based on all information available to a reasonable and prudent contractor at the time of bidding, and its conduct is judged by an objective standard regardless of its status as a small disadvantaged business. The Federal Circuit reversed the Court of Federal Claims, holding that the lower court erred by applying a subjective standard (what a small disadvantaged business would do) instead of the objective 'reasonable and prudent contractor' standard when assessing Mac's pre-bid conduct and interpretation of contract documents. The court found that the trial court's finding of a pre-bid site visit by Mac was 'clearly erroneous,' as both Mac's estimator and Vice President testified that no such visit occurred; a contractor is charged with knowledge of conditions a pre-bid site visit would have revealed, such as the site's proximity to the ocean and streams, which indicate variable subsurface conditions. The court concluded that a reasonable and prudent contractor would not have understood the distant boring logs (300 yards away) to provide an affirmative indication of subsurface conditions at the oil/water separator site, given the geologic and topographic features of Fort Shafter Flats, where interaction of the ocean and streams leads to highly variable conditions, as supported by expert testimony. Furthermore, the court determined that the need for sheet pile shoring was not reasonably unforeseeable; excavation for the oil/water separator tank required going approximately ten feet below the water table, which, according to government expert Mr. Fewell, would necessitate a sophisticated dewatering system and horizontal barriers like sheet piling due to substantial lateral and upward hydrostatic pressures. Mac failed to provide expert testimony suggesting safe excavation without sheet piling in such conditions, absent a limestone layer. Documents like the Corps' Final Soil Investigation Report (SIR) and an internal Corps memorandum, which the trial court relied upon, could not constitute contractual indications for a differing site condition claim because Mac did not review them until discovery and they did not exist at the time of bidding, respectively (citing Stuyvesant Dredging Co. v. United States).
Analysis:
This case is significant for clarifying the standard applied to contractors claiming differing site conditions, unequivocally stating that the 'reasonable and prudent contractor' standard applies universally, irrespective of the contractor's size, experience, or designation. The ruling reinforces that contractors are responsible for conducting reasonable pre-bid investigations, including site visits, and are charged with knowledge of conditions such a visit would reveal. It also highlights the limitations of relying on distant or general subsurface data, particularly in geologically complex areas, and underscores the need for contractors to foresee obvious construction challenges (like deep excavation below the water table) when specific site data is lacking, thus shifting the risk onto the contractor for such foreseeable conditions.
