# United States **Court of Appeals**  **for the Federal Circuit**

______________________

RELIABLE CONTRACTING GROUP, LLC, Appellant

v.

DEPARTMENT OF VETERA NS AFFAIRS, Appellee

______________________

2014

- 1326

______________________ Appeal from the Civilian Board of Contract Appeals in No. 3048, Administrative Judge Anthony S. Borwick, Administrative Judge Patricia J. Sheridan, Administr ative Judge Stephen M. Daniels.

______________________

Decided: March 6, 2015

______________________

R EGINALD A SHTON W ILLIAMSON , Kilpatrick Townsend & Stockton LLP, Atlanta, G A , argued for appellant . Also represented by W ILLIAM E. D ORRIS ; T HURSTON H OLDERNESS W EBB , Winston

- Salem, NC.

W ILLIAM J AMES G RIMALDI , Commercial Litigation Branch, Civil Division, United States Department of Justice, Washington, DC, argued for appellee. AlsoRELIABLE CONTRACTING GROUP v. DVA 2

represented by S TUART F. D ELERY , R OBERT E. K IRSCHMAN , J R ., K IRK T. M ANHARDT

.

______________________

Before N EWMAN , C LEVENGER , and D YK , Circuit Judges.
Opinion for the court filed by Circuit Judge D YK . Dissen ting opinion filed by Circuit Judge N EWMAN

. D YK , Circuit Judge

. Reliable Contracting Group, LLC (“Reliable”) appeals from a decision by the Civilian Board of Contract Appeals (“Board” ) . The Board denied Reliable’s claim for an equita ble adjustment of a Department of Veterans Affairs (“ VA ”) contract which required the installation of three backup generators for a VA medical center. Reliable contends that the VA improperly rejected the generators on the ground that they were not “new” as required by the
contract. Because we hold that the Board erred in its interpretation of the contract , we vacate the Board’s decision and remand fo r further proceedings

. B ACKGROUND On February 10, 2003, the VA awarded a contract to Echo Construction Company (“Echo”) for the design and construction of electrical improvements at a VA medical
center. On March 31, 2003, Echo , the VA, and Reliable
entere d into a novation agreement, effectively replacing Echo with Reliable.
The contract required that three backup generators be installed. Section 1.47 of the contract, entitled

“ MATERIAL AND WORKMANSHIP ,” required that “ [a] ll equipment, material, and articles incorporated into the work covered by this contract shall be new and of the most suitable grade for the purpose intended, unless otherwise specifically provided in this contract.” J.A. 79.RELIABLE CONTRACTING GROUP v. DVA 3

That section did not define “new .” Separately

, § 1.79 incorporat ed Federal Acquisition Regulation (“ FAR ”) 52.211 -5 by reference . FAR 52

. 211 -5 contained a separate requirement that supplies called for by the contract be “new , reconditioned, or remanufactured, ” and it defined “new” to require that the supplies be “c omposed of prev iously unused compo nents

. ” See 48 C.F.R. § 52.211

- 5.

Reliable sub

- contracted the procurement of the ele ctrical generators to Fisk Electric Company (“Fisk”), which in turn contracted with DTE Energy Technologies, Inc. (“DTE”) to provide the generators. On June 26 and 27 of
200 4

, DTE delivered two Cummins Power Generation (“Cummins”) generators to the construction site. Upon delivery , the VA’s senior resident engineer, Leonard Romano, inspected the two genera tors and determined that they we re, in his view, not “new .” He wrote to Reli able, stating:

I am concerned tha t [ the two generators that were delivered] are not “ new ” as required by [ § 1.47(a)]. They show a lot of wear and tear including field burns to enlarge mounting holes. Are they new and will you certify them as such? I cannot pay you for these as planned in this month’s payment without that certification.

J.A. 2.
This letter initiated a flurry of letters between Rom ano, Reliable, Fisk, and DTE , with Fisk and Reliable initially ex pressing agreement that the generators did not meet the contract specification

. For example, on June 28, Fisk wrote to DTE, stating: “[m]y foreman noted that the units were in ‘BAD CONDITION’ and proceeded to install the units .” J.A. 102. Similarly, on June 29, Reliable
wrote to Fisk , stating: “ [a] s we discussed with you, the equipment on site is clearly unacceptable by anyone’sRELIABLE CONTRACTING GROUP v. DVA 4

standards

. . . . ” J.A. 109. On that same day, Reliable wrote to Romano, stating:
Representatives of Fisk have assured us that they were as surprised as anyone at the condition of the equipment delivered to the site. We have been working closely with Fisk personnel to investigate the matter and per our conversation have directed them to remove the nonconforming generators fr om the project site.

J.A. 303. B oth Fisk and Reliable personnel continued to investigate the matter, and Romano continued to assert his belief that the generators were not conforming.
After investigation, Reliable and Fisk came to the conclusion that the generators, which were manufactured in 2000, had been previously purchased by others but never used

. Reliable presented this information to Rom ano on July 9, but Romano nonetheless rejected the gene rators, asserting that “[p]revious ownership makes them used.” J.A. 6. Subsequently, Fisk obtained different generators, which were accepted by the VA and installed

. On April 3, 2007, Relia ble submitted a claim to the VA, alleging that the VA had violated the contract and seeking roughly $1,100, 000 for additional costs incurred as a result of the VA’s rejection of the three original generators. The VA failed to timely respond, so Reliable appealed to the Board. On November 27, 2013, the Board denied Reliable’s claim , finding that the generators we re not “new” because they were not capable of being factory tested . Reliable appealed to this court.
We have jurisdiction pursuant to 41 U.S.C. § 7107(a)(1)(A).RELIABLE CONTRACTING GROUP v. DVA 5

D ISCUSSION We review questions of law, including interpretations of contract s, de novo. Rockies Express Pipeline LLC v. Salazar , 730 F.3d 1330, 1335

– 36 (Fed. Cir. 2013). We review factual questions for substantial evidence. Id. at 1335.
The parties ’ dispute centers around the contract’s requirement that the generators be “new.” The Board held, and the VA presently argues , that “new” requires that each generator be “capable of being tested at the factory.” J.A. 8. This definition comes from the language of § 1.79, whi ch incorporates FAR 52.211

- 5’s require ment that the generators’ supplies “meet contract requir ements ” t o be considered “new,” 48 C.F.R. § 52.211 -5, and § 16 208, which requires that the generators be capable of factory testing. 1 Because the generators left the factory in 2000, the Board reasoned, they were incapable of being factory tested in 2004 and therefore not “new .” On the

1 Section 16208.1.3(E) provides

, in relevant part: Factory Test: The government shall have the o ption of witnessing the following tests at the fact ory.

. . . 1. Load Test: Shall include six hours of contin uous operation; four hours while the set is deli vering 100 percent of the specified KW and two hours while delivering 110 percent of the spec ified KW.

. . . 2. Quick Start Test: Record time required for the engine generator set to develop specified vol tage, frequency and KW load from a standstill condition.

J.A. 301

– 02.RELIABLE CONTRACTING GROUP v. DVA 6

other hand, Reliable argue s that the contract is clear on its face because § 1.79 provides an express definition of

“ new ” : “ new ” means comprised of unused parts

. A ccordin g to Reliable, because the genera tors ha d never been used

, they were “new” even though previously owned and damaged by improper storage. We reject both interpret ations.
We reject the VA’s and the Board’s interpretation for
two reasons

. First, the VA never contemporaneous ly argued that the generators were non

- conforming because they were incapable of being factory tested. Generally, evidence of contemporane ous beliefs about the contract is particularly probative of the meaning of a contract. See Bli nderman Const r . Co. v. United States , 695 F.2d 552, 558 (Fed. Cir. 1982) (“It is a familiar principle of contract law that the parties’ contemporaneous construction of an agreement, before it has become the subject of a dispute, is entitled to great weight in its interpretation.”); Max Drill , Inc. v. United States , 427 F.2d 1233, 1240 (Ct. Cl. 1970) (en banc) (per curiam) ( expressly adopting Commi ssioner Stone’s view that “ [t] he interpretation of a contract by the parties to it before the contract becomes t he subject of controversy is deemed by the courts to be of great, if not controlling [,] weight” ). Second, the contract required that the generators be capable of a “factory test” but did not expressly require testing be done at the factory at the time the generators were manufactured , nor did it require that testing be done at the factory if the government did not request it

. H ere, the Board found that that the ge nerators were subsequently tested by Cummins factory

certified techni cians, and the VA declin ed to observe the testing

. There is no showing the generators were incap able of being tested at the factory if actual testing at the factory had been requested by the government

— which it had not in fact requested

.RELIABLE CONTRACTING GROUP v. DVA 7

On the other hand, we reject Reliable’ s interpretation because it is incomplete. While we agree that generators that had been used would not comply with the contract, 2 we think that the mere fact that the generators were not used does not make them “new.” Reliable

, aided by the July 8, 2013, affidavit of Fisk’s Executive V ice P resident James Muhl

, argues that the generators were “new” because they were not used, and in the industry, “gener ators are not ‘used’ until the generators are commissioned[, at which point] the manufacturer pushes out the new equipment warranty and the unit is put into ‘service.’” J.A. 234. While Muhl’s affidavit speaks to the industry definition of “used,” he does not provide an industry definition of “ new, ” 3 and dictionaries do not define “new” as simply being the opposite of “used.” 4 Reliable relies on § 1.79 , which incorporate d FAR 52.211

- 5 and defines

“ new ” to mean “ composed of previously unused comp onents. ” 4 8 C.F.R. § 52.211

- 5(a). But, by its own terms, that definition is expressly limited to FAR 52.211

- 5 itself

. 5

2 There is no contention here that the generators were used. The run times demonstrated only that the generat ors had been tested.

3 Muhl’s statement that , “[i]f the unit has not be [en] ‘used’, then the unit is ‘new

, ’” was his conclusion with respect to these “ particular generator [s],” not a general statement about industry practice. See J.A. 234.

4 If anything, the opposite of “new” tends to be “old,” not “used.” See, e.g.

, Random House Webster’s Unabridged Dictionary 1293 (2d ed. 1999) (“New, fresh, novel describe something that is not old.”); see also Webster’s Third New International Dictionary 1 522 (2002).

5 FAR 52.211

- 5, incorporated by reference into § 1.79, provides in relevant part:RELIABLE CONTRACTING GROUP v. DVA 8

As noted above, there are two separate “new” r equirements, one found in § 1.47 and one found in § 1.79. Section 1.79 ’s “new” requirement focuses on the quality of the components in the generator

— the components must be unused. Section 1.47 sets forth a different requir ement. Under § 1.47, the generator itself must be “new.” And, in that section, “new” is undefined. Read ing the contract in this manner

— that § 1.47 and § 1.79 set forth separate and distinct “new” requirements

— is reinforced by the rule of construction disfavoring surplusage and redundancy

. See Mass

. Bay Transp. Auth

. v. United States , 129 F.3d 1226, 1231 (Fed. Cir. 1997) ( “It is a fundamental rule of contract interpretation that the provisions are viewed in the way that gives meaning to all parts of the contract, and that avoids conflict, redunda ncy, and surplusage among the contract provisions.” ). Reliable ’s interpretation is incomplete because the “new” requirement under § 1.47 focuses on the generator as a whole, not the component parts

. While the parties agree that “ new ” requires no prior use

, there is no justification for treating a generator as new so lely because it has not been used.

Because “ new , ” as used in § 1.47

, is not defined by the contract and there is no single plain meaning of the word

(a) Definitions. As used in this clause — New means composed of previously unused comp onents, whether manufactured from virgin material, recovered material in the fo rm of raw material, or m aterials and by

- products generated from, and reused within, an original manufacturing process

. . . .

. . . 48 C.F.R. § 52.211 -5 (emphasis added).RELIABLE CONTRACTING GROUP v. DVA 9

“new,” it is ambiguous

. I t is therefore appropriate to look both to the dictionary definitions of “new” and to industry defini tions, standards , and practices

. See C.A. Acquisition Newco, LLC v. DHL Express (USA), Inc. , 696 F.3d 109,
11 3–1 4 (Fed. Cir. 2012) (noting that the trial court “should also consider any relevant industry practices” when res olving ambiguous terms in a contract and loo king to dictionary definitions to resolve ambiguities ) ; Hunt Const r . Grp

. v. United States , 281 F.3d 1369, 1373 (Fed. Cir. 2002) (industry meaning can be used as an interpr etative aid in understanding terms in a contract) ; see also Nat ’ l Union Fire Ins. Co. v. Lumbermens Mut

. Cas

. Co.

, 385 F.3d 47, 55 (1st Cir. 2004) ( vacating a district court decision interpreting a contract and remanding for fu rther consideration in light of industry practices)

. One possible meaning is the one initially put forth by Romano but subsequently dropped , i.e., that “ new ” means not previously owned by another. T his definition was disputed by Muhl’s affidavit . In it, he described that , “ [i] n the electrical contracting and constructi on business, simply being owned and kept in storage by an intermed iary does not make a generator ‘used’

. . . . ” J.A. 238

. The record evidence shows that generators are not

uncommonly sold through various intermediaries , and, as here, are still entitled to a manufacturer’s warranty . In such circumstances, an interpretation that “new” requires that the generators not be previously owned is incorrect

. Indeed, t he VA no longer argues that this is the meaning of “new” in this context.

“New” could require that the generators be recently manufactured. This has some support in the dictionaries. See Black’s Law Dictionary 1204 (10th ed. 2014) ( “recently come into being <the new car was shipped from the fact ory this morning>” ); Webster’s Third New Internatio nal Dictionary 1522 (2002) ( “having existed or having beenRELIABLE CONTRACTING GROUP v. DVA 10

made but a short time; having originated or occurred lately” ). W e do not think that this is what the parties intended when they required that the generators be “new.” Neither party argues for this meaning, and no evidence was put forth with respect to the average life expectancy of a backup generator, the speed at which generator technology is improving, or the like. Recent manufacture is not a requirement

. “New” could require a fresh conditi on. Dictionary definitions support this interpretation. See Webster’s Third New International Dictionary 1522 (2002) (defining “new” to mean: “usu[ally] of superior quality;”

“ [f]reshness ; ” “ [f] resh in this connection applies to what is new and still ret aining a first liveliness, energy, virginal quality, and so on” ). We think this definition is appropr iate for purposes of § 1.47. There is no testimony as to how, in the industry, a generator can be “new” if it has been severely damaged. I t defies log ic to conclude that the parties inten ded to treat seriously damaged gener ators as “new .”
In interpreting “new” to require the generators be “fresh,” we do not mean that the generators were required
to be entirely free of cosmetic defects. It is entirely fo reseeable that slight, superficial damage might occur during shipment or storage, and there is no evidence put forth by either party that the contract intended to define “new” to exclude damage such as paint scratches or light and easily fixable rusting. See, e.g.

, Groban v. S. S. Pegu , 331 F. Supp. 883, 887, 890

– 91 (S.D .N.Y. 1971) (explaining that tractors exposed to heavy tropical rains during shipment, which resulted in surface damage to the tra ctors, were still “new” ). In our view, “new” require s that the generators must not be used and also must be free of significant damage, i.e. , damage that is not cosmetic.RELIABLE CONTRACTING GROUP v. DVA 11

The record evidence before us is conflicting with r espect to the extent of the damage , and there was no express finding by the Board on the issue.

While

, as noted above, there are unequivocal admi ssions by Reliable that the generators were significantly damaged and not in conformity with the contract, t hese statements are not binding judicial admissions. Although this circuit has had limited opportunities to address the doctrine, it is clear from other circuits that judicial admi ssions, which “have the effect of withdrawing a fact from issue and dispensing wholly with the need for proof of the fact,” are limited to formal admiss ions made in, f or exa mple, a complaint, answer, or pretrial order. See Am

. Title Ins. Co. v. Lacelaw Corp. , 861 F.2d 224, 226 (9th Cir. 1988) (quoting Dery v. Gen. Motors Corp. ( In re Fordson Eng ’ g Corp. ) , 25 B.R. 506, 509 (Bankr. E. D. Mich. 1982) ).
Although not formal judicial admissions and therefore not binding

, contemporaneous admissions by Reliable are nonetheless probative evidence that the generators did not comply with the contract

. See 3M Co. v. Mohan , 482 F. App ’x 574, 579 (Fed. Cir. 2012) (citing a party’s apol ogies to customers for causing confusion as support for the factual finding that the party did cause con f usion); Sutton v. Calhoun , 593 F.2d 127, 128 (10th Cir. 1979) ( affirming the trial court’s submission to the jury of the question of how much probative weight should be assigned to an admission of mistake by a doctor in a case alleging negl igence on the part of the doctor ); Becton v. Starbucks Corp. , No. 2:05

- CV

- 1143, 2007 WL 2688128 , at *3 (S.D. Ohio Sept . 6, 2007) (admitting a contemporaneous stat ement by a Starbucks manager apologizing for an impro perly secured lid because it was probative of whether the lid was properly secured)

. It is also sig nificant that Reliable was unwilling at the time of deliver y to certifyRELIABLE CONTRACTING GROUP v. DVA 12

that the generators were “new” or to characterize them as

new

. On the other hand, Muhl, in his July 9, 2013, affid avit, concluded that the damage to the generators was entirely cosmetic . He asserted that the damage to the generators was superficial, consisting of rust, scraped paint, disconnected hoses, and dust, dirt, and grime. According to him, the damage was easily remedied with a “buff and puff” and did not affect the quality of the gene rators.
There was thus conflicting evidence as to the extent of the damage. There were admissions that the damage to the generators was substantial, but the affidavit from Muhl asserts it was not. In light of the conflicting ev idence and lack of fact

- finding by the Board on this issue

, we remand for the Board to determine whether the da mage to the generators during the four

- year period between the original manufacture and the date of delivery to the VA sit e was significant enough to render the generators
not “ new. ”

Because our int erpretation of “new” includes an ana lysis of the extent of the damage and whether it can be fully and easily cured, there is no need to address Reli able’s economic waste theory, as that doctrine substantially overlaps with whether the generators at issue are “new” under the co ntract

. See Granite Constr

. Co. v. United States , 962 F.2d 998, 1007

– 08 (Fed. Cir. 1992) (explaining that rejecting performance of a contract in which the performance is entirely adequate for the purpose of t he project is economic waste)

. VACATED AND REM ANDED

C OSTS Costs to neither party.

# United States **Court of Appeals**  **for the Federal Circuit**

______________________

RELIABLE CONTRACTING GROUP, LLC, Appellant

v.

DEPARTMENT OF VETERA NS AFFAIRS, Appellee

______________________

2014

- 1326

______________________ Appeal from the Civilian Board of Contract Appeals in No. 3048, Administrative Judge Anthony S. Borwick, Administrative Judge Patricia J. Sheridan, Administr ative Judge Stephen M. Daniels.

______________________

N EWMAN , Circuit Judge, dissenting.
The Department of Veterans Affairs (“VA”) and Reli able Contracting Group (“Reliable”) entered into a contract for construction of a veterans’ medical center in Miami, Florida . The contract included the pro vision and install ation of three new backup electrical generators.

The prime contractor Reliable, through a subcontractor and supplier, provided previously owned, rusted, grime

- encrusted, four -year-old generators with mounting holes and field burns

. The VA on- site engineer observed their condition and objected to their installation

. Reliable agreed

, and wrote that the generators were “nonconfor ming” and “clearly unacceptable by anyone’s standards,”RELIABLE CONTRACTING GROUP v. DVA 2

and chastised the subcontractor. The subcontractor desc ribed the generators as in “bad conditio n” and cha stised the supplier.
Reliable refused to certify the generators as “new” and the VA refused to accept them. Reliable instructed the subcontractor to remove the generators and provide “conforming equipment .” The claim here is $1.1 million for the cost of providi ng the replacement generators. The contracting officer, affirmed by the Civilian Board of Contract Appeals

, denied the claim, stating that the generators were not new and that no additional compe nsa tion was warranted

. My colleagues on this panel now fault the VA for rejecting the generators without ascertaining whether the y might be cleaned up and refurbished

. On this reasoning, my colleagues re mand to the Board with instruction s to determine whether the damage to the generators during the four

- year period in which they were improperly stored was “significant enough” to render the generators not

new. Maj. op. at 12.
I respectfully dissent.

D ISCUSSION

The Board’ s findings of fact are final u nless they are “fraudulent, or arbitrary, or capricious, or so grossly erroneous as to necessarily imply bad faith, or if such decision is not supported by substantial eviden ce.” 41 U.S.C. § 609(b) (1982).

No e rror has been shown in the Board’s determinat ion that the generators were not new and that an adjustment was not warranted. The Board noted Reliable’s stat ements that the generators were “nonconforming” and “clearly unacceptable by anyone’s standards.” The co ntract is explicit as to the require ment for new generators. Section 1.47 of the contract states:RELIABLE CONTRACTING GROUP v. DVA 3

(a) all equipment, material, and articles incorp orated into the work covered by this contract shall be new and of the utmost suitable grade for the purpose intended, unless otherwise specifically provided in this con tract.

The Board observed that neither Reliable nor its subco ntractor characterized the generators as new, and that both refused to so certify.

M y co lleagues on this panel hold that “new” inclu des previously owned generators if they are in “fr esh cond ition, ” unused, and free of “ significant damage .” Maj. op. at 10. Whatever may be the applicability of such a stan dard to other f acts, the se generators showed more than “slight, superficial damage.” Id. T he absence of “ fres hn ess ” of the s e begrimed, four -year- old, “inadequately stored,” previously owned generators was not plausibly disputed. No error in fact or law has been shown in the Board’s determination that the se generators were not
new, on any reasonable standard of new ness. Indeed, t he panel majority refers to the “unequivocal admissions by Reliable that the generators were significantly damaged and not in con formity with the contract. ” Id. at 11 . However, the majority relieves the contractor of these admissions because they were not “binding judicial admissions” in formal court documents, but were made only in contemporaneous written records. Id. No basis has been shown for excluding this evidence

. The panel majority further errs in ruling that the c o rrect interpretation of “new” in government contracts or under the FAR includes previously owned and damaged equipment if the damage “can be fully and easily cured.” Id. at 12 . Old and damaged equipment does not become new if the damage can be cured. T here was no obligation, in law or equity, for the VA to determine whether these admittedly “ nonconforming ” generators could be cleanedRELIABLE CONTRACTING GROUP v. DVA 4

up and refurbished. The additional costs of contract compliance are not the obligation of the agency.

The Board’s denial of the requested adjustment is correct, and is well supported in fact and law. There is no reasonable basis for further proceedings on this claim. From my colleagues’ contrary ruling , I respectfully di ssent.