ARMED SERVICES BOARD OF CONTRACTAPPEALS Appeal of

-- ) ) Tug Hill Construction, Inc. ) ) Under ContractNo. W9126G-09-D-0006 )

APPEARANCE FORTHEAPPELLANT:

APPEARANCES FORTHE GOVERNMENT: ASBCA No. 57825

BrianR. Dugdale, Esq.

Varela, Lee, Metz & Guarino McLean, VA

Thomas H. Gourlay, Jr., Esq.

Engineer ChiefTrial Attorney Charles L. Webster III, Esq. Cindy E. Shimokusa, Esq.

EngineerTrial Attorneys U.S. Army EngineerDistrict, Fort Worth

OPINION BYADMINISTRATIVE JUDGE MCILMAIL

The government entered into a firm, fixed-price contract with appellant for constructionwork at FortBliss, Texas. Appellant seeks additional compensation for utility system work in excess ofits original price. The Boardconducted an eight-day hearing, onthe issue ofentitlement only. The Board finds that appellant is not entitled to additional compensation, and denies the appeal.

FINDINGS OF FACT

1. On 9 April 2010, a Request for Proposals (RFP) was issued bythe U.S. Army Corps ofEngineers (government orUSACE) for Phases 3 and 4 ofthe Fort Bliss CombatAviation Brigade Additional Infrastructure Project (CAB 3 & 4) to the five contractors in the government's FortBliss infrastructure multiple award task order contract (MATOC) (R4, tab 3). Theproposed task orderwas to be awarded on a firm fixed-price basis to the lowestpriced acceptable offeror (R4, tab 4).

2. The scope ofwork for the project included the demolition ofcertain sections ofexistingutility systems and the construction ofnew primary electric, water, sanitary sewer, communications, and natural gas utilities systems. The new utilities would subsequently be connectedbackto the existing mainutility systems. (R4, tab 3 at 55-57, 99) Further, the delivery orderprovides:

### SPECIAL NOTICE: The existing Fort Bliss Main Post Utility Systems are privately owned. This scope ofwork includes coordinating projectutility requirements with the owners ofthe privatized utility systems. Typically Utility owners will
remove existing utilities, install new primary utility systems and make final connections between the new systems and existing. However, contractors shall be responsible for negotiating and finalizing utility system work with the utility providers. The Contractorwill include its cost for such work in its cost proposal. (R4, tab 4 at40) We find that the language ofthe Special Notice is unambiguous, and put offerors on notice that they were to make arrangements, or at least conduct discussions with, the utility providers, and account for whatever resulted from those arrangements or discussions in their costproposals.

3. Three offerors submittedproposals for the delivery order: appellant, J.D. Abrams, and Sundt Construction (Sundt) (R4, tab 29; tr. 7/148, 8/118).

4. The Fort Bliss waterutility provider was Fort Bliss Water Services Company (FBWS), the electric utility provider was Rio Grande Electric Cooperative, Inc. (RGEC), and the gas utility provider was Texas Gas (tr. 7/130). FBWS and RGEC became the owners ofthe Fort Bliss utility systems through a privatization effortthat resulted in the utility providers entering into 50-year contracts with the Army. Thus, the Army gave these two utility owners service contracts that obligate them to operate and maintain their respective systems and to provide utility services to FortBliss. (R4, tabs 15, 16). We find that these contracts allow the utility owners to act as autonomous entities withrespect to their respective utilities on FortBliss.
5. Appellantwas aware ofthe Special Notice as early as 11 May 2010, priorto submitting its proposal (supp. R4, tab 137; tr. 1171, 171-73). On that date, in addition to extending the proposal submission deadline to 24 May 2010 at 2:00 pm, the government amended the RFP to add the Special Notice to the Scope ofWork (supp. R4, tabs 38-41).

6. On 19 May 20I0, appellant received word from a company named CF Jordan that, with respect to CAB 3 & 

### 4, "[FBWS] is going to be doing the water/sewer" (supp. R4, tab 148 at 827).

27. On 19 May 2010, Sundtpostedthe following (Inquiry No. 3276130) on the government's "ProjNet" 1 system, with respectto CAB 3 & 4:

Please clarify the Special Notice regarding coordination and negotiations with the owners ofprivatized utilities. Baseduponthe languageprovided, bidders should include in their costproposal: Costs ofworktypically performed by the utility owners. Fees chargedbythe utility owner, such as design review, connection, and inspections. Costs for all otherworkrequired to conform with the contract documents. Are these assumptions correct? Finally, shouldthe contractor assume, depending on the utility owner, the contractor may berequiredto sub-contract directly withthe utility ownerin orderto complete the work? (Supp. R4, tab 45 at 77)

8. Priorto submittingtheircostproposals, Sundt and J.D. Abrams contacted FBWS andRGEC. RGEC would notprovide a price quote for the delivery order electrical utility systemwork, but, on 20 May 2010, FBWS provided a quote of $11,071,000 to Sundt and J.D. Abrams for the waterutility system work. (Supp. R4, tabs 146, 151; tr. 7/144-48, 8/117-20).

9. Also on 20 May 2010, a company named Helix Electric, Inc. (Helix), passed along to appellant a message that Helixhadreceived from RGEC regarding CAB 3 & 4, in which RGEC stated:

We are the owners ofthe Ft. Blisspower distribution system. Please ask your general contracting POC oryour USACE POC to contactus aboutthe workrequired for CAB phases 3 & 4. (Supp. R4, tab 144 at 819) Onthe same day appellant contactedRGEC, and asked, withrespect to CAB 3 & 4, "[c]anyou explain the work to be completed on this projectbythe

...contractor and whatrole [RGEC] will play in the projectplease" (supp. R4, tab 150 at 832). Thepurpose ofappellant's question was to seek clarification "as

1 The ProjNet inquiry system is a public electronic bulletin board where offerors may askthe USACE for clarification on a solicitation (see tr. 1/126). Itallows offerors to view all previously-submitted inquiries, and responses, and to add
new inquiries (R4, tab 3 at 75).

3to what [appellant's] role was going to be and what [RGEC's] role was going to be" (tr. 11121). On 21May2010, RGEC replied:

RGEC's typical role involves anything with the electrical utility system. We are responsible for all ofthe demolition ofexisting and installation ofnew distribution utilities

.... We have yetto receive clearplans so I am unable to fully comment on the workto be completed onthe project. If this doesn't answer your question, please let me know and I cantry to provide you with better information. (Supp. R4, tab 150 at 831)

10. On 21 May 2010, Sundtposted the following (InquiryNo. 3283285) on ProjNet, with respect to CAB 3 & 4:
[RGEC] has informedthe General Contractors that they will not be providingpricing for at least (3) three weeks. In addition, [RGEC] is not going to approve the existing design. [FBWS] has only provided conceptual budgetary numbers that are not contractually binding. [FBWS] says that firm pricing will be available inthe next month. [FBWS], Texas Gas, and [RGEC] are not goingto allow the

...contractors to self-performthe work.... Giventhat we are not goingto receive pricing, we are requesting a suitable time extension for the privatized utility contractors to provide firm price quotations. (Supp. R4, tab 45 at 77-78)

11. The government did not respond to Inquiry Nos. 3276130 and 3283285 (supp. R4, tab 45 at 77-78).

12. On the morning of22 May 2010, Steve Haskins, appellant's estimating manager and purchasing manager (tr. 1/58), emailed Jeffrey Kellogg, appellant's president and sole owner (tr. 1/147), bringing to Mr. Kellogg's attention Inquiry No. 3283285, which was included in an attachment to that email (supp. R4, tab 155 at 837, 843-44). The attachment also contained Inquiry No. 3276130 (supp. R4, tab 155 at 843-44). Thatevening, Mr. Haskins raised withMr. Kellogg the issue of "risks" with respect to CAB 3 & 4, including "impacts ofSpecial Note," and "Attorney fees to carry, ifany" (supp. R4, tab 156 at 845).

413. Onthe morning of24 May 2010, at 10:02 am, appellant was told by a company named SBC Global that it had learned that, with respect to CAB 3 & 4, "[RGEC] will not let anyone do their work on this project," "[RGEC] does not like the [government's] design and intends to redesign the project," and "[RGEC] will not have a price for this for 3to 4 weeks." SBC Global also told appellant:

With this as itis please proceed as you see fit with the bid I sentyou. Itwould be bad ifthe cost I gave you is less than [RGEC] quotes and someone gets stuck." (Supp. R4, tab 157 at 846)

14. On 24 May 2010, at 1:43 pm, appellant submitted its proposal (supp. R4, tab 159 at 850).

15. We find that appellant did not seekprice quotes from FBWS orRGEC before submitting its proposal, and moreover, never contacted FBWS regarding CAB 3 & 4 before submittingthat proposal (tr. 1/132-33, 2/76).

16. On 16 June 2010, USACE awarded Delivery Order No. 0006, pursuantto ContractNo. W9126G-09-D-0006, to appellant for the fixed price sum of$28,024,550 (R4, tab 4 at 1, 4).

17. On 24 August 2010, appellant informed the government that it had received pricing from RGEC andFBWS that was higher than the pricing that appellant had included in its proposal (app. supp. R4, tab 292 at 586). Appellant requested that the government "directthe Utility Providers to provide competitive pricing" (id. at 587).

18. On 2 September 2010, the contracting officer (CO) informed appellantby letter that appellant's "soleremedy is to continue negotiating with the utility providers until a reasonable price is obtained" (app. supp. R4, tab 295 at 2).

19. On 9 September 2010, John Moreno, the government's deputy program manager, stated in a meeting the day before with RGEC and FBWS (and others, but not appellant) that, with respect to CAB 3 & 4:
[I]t was clear in the amendmentthat was put outto their contractors thatthey were supposed to coordinate with the [utility providers] for pricing and ifthey did not do that this was nowtheir problem. (Tr. 5/74, 93-95; app. supp. R4, tab 301 at 141-42, 

### ,-r 7)

5

### 20. By letter dated 24 September 2010, FBWS informed appellant that its revisedpricing was its final position. FBWS added:

Per COE Amendment 2, the MA TOC contractors were to have contacted the Utility providers, (FBWS for water and waste water) for pricing, priorto bid submission. Although other MATOC contractors made contact with FBWS, [appellant] did not. Had [appellant] followed the instructions in Amendment 2, FBWS strongly feels this pricing issue could have been avoided. (Supp. R4, tab 192)

21. In November 2010, appellant entered into a service agreement withFBWS, agreeing to pay $11,726,123 for waterutility system work at Fort Bliss (supp. R4, tab 210).

22. In January 2011, appellant entered into a service agreement with RGEC, agreeing to pay $8,821,602.99 for electric utility system work at Fort Bliss (supp. R4, tab 223).

23. In March 2011, appellant presented a certified claim to the CO for $11,357,528.20 (R4, tab 26 at 30). Appellant claimedthat its costproposal had included $5,867,800 for FBWS's scope ofwork, and $5,973,050 for RGEC's scope of work (id. 

### at 3). Appellant asserted that the governmenthadbreachedthe implied covenant ofgood faith and fair dealing, including by not helping appellant negotiate with FBWS and RGEC (R4, tab 26).

24. On 31 October 2011, the CO issued a final decision denying appellant's certified claim (R4, tab 2).
25. Appellanttimely filed this appeal on 2 November 2011.

DECISION

The Implied Covenant of GoodFaith andFairDealing 

### Appellant contends that the government breachedthe implied covenant ofgood faith and fair dealing after the award by not helping appellant negotiate with the utility providers after appellant was awarded the delivery order. We reject that contention. The implied duty ofgood faith and fair dealing cannot expand a party's contractual duties beyondthose in the express contract. MetcalfConstruction Co. 

### v. United States, 

### 742 F.3d 984, 991 (Fed. Cir. 2014). The implied duty ofgood faith and fair dealing is limitedby the original bargain: it prevents aparty's acts or omissions that,

6though not proscribed by the contract expressly, are inconsistent with the contract's purpose and deprive the otherparty ofthe contemplated value. Id. Pursuantto the Special Notice, the governmenthired appellant to coordinate, negotiate, and finalize the utility systems workwith the utility providers (finding 2); the implied duty ofgood faith and fair dealing did notrequire the governmentto help appellantperform that work, orto help appellant obtain lowerprices from the utility providers. Nothelping appellant negotiate withthe utility providers was not inconsistent with the delivery order'spurpose and did not deprive appellant ofthe contemplated value ofthe delivery order; the delivery order nowhere implies that the government was required to intervene in the negotiations, and did not deprive appellant ofany ofthe contemplated value ofthe delivery order. 2 

### CfBell/Heery v. UnitedStates, 739 F.3d 1324, 1331-35 (Fed. Cir. 2014) (allegations that government failed to engage state agency regarding contractor's excavationpermit application did not state a claim ofbreach ofthe implied covenant ofgood faith and fair dealing where contractprovidedthat "[t]he Contractor shall, 

### withoutadditional expense to the Government, be responsible for obtaining any necessary licenses andpermits"). Tothe contrary, appellant agreed to a fixed price for a scope ofworkthat included negotiating withthe utility providers; whetherthat price coveredthe eventual cost ofthe scope ofwork was appellant's risk.

On this pointthe Special Notice is unambiguous: the scope ofwork "include[d] coordinating project utility requirements withthe owners ofthe privatized utility systems," that "contractors shall beresponsible for negotiating and finalizing utility system work with the utility providers," and that "[t]he Contractorwill include its cost for such work in its costproposal" (finding 2). Appellant agreed to perform the delivery orderwork for the fixed price of$28,024,550 (finding 16) without having first negotiated the workwith the utility providers (finding 15); consequently, appellant, notthe government, assumed the risk that the workwould cost more than appellant anticipated when it submitted its proposal. 

### See Spindler Constr. Corp., ASBCA No. 55007, 06-2 BCA**~** 33,376 at 165,462-63. Therefore, although appellant contends that FBWS andRGEC charged more than appellant anticipated for utility system work, and thatthe process ofcoordinating, negotiating, and finalizing agreements withthe utility providers otherwise increased its costs, appellant bore that risk whenit submitted its proposal.

2 Appellant does not appearto rely upon the 9 September 2010 statement made by John Moreno, the government's deputyprogram director, during a meeting with the utility providers (finding 19). In any event, we find thatMr. Moreno's statement did not breach the implied duty ofgood faith and fair dealing. That statement merely reflectedthe government's view, consistent withthe unambiguous language ofthe Special Notice (finding 2), that appellant was responsible for coordinating and negotiating utility systems work withthe utility providers. 3 Appellant raises no issue with respect to Texas Gas.

7Appellant contends that the government breachedthe implied duty ofgood faith and fair dealing because, appellant contends, the government controlledthe utility providers through other contracts, but did not exertthat control to help appellant negotiate withthe utility providers. A contractor does not assume the risk of interference with its performance by the government's other contractors who are also under the control ofthe government. 

### See Toombs & 

### Co., Inc., ASBCANo. 34590 

### etal.,**91-1BCA~23,403** at 117,423 (government's failure to assure timely performance ofits asbestos contractor breached duty to cooperate with construction contractor whose performance was delayed). However, in this matter, appellant does not demonstrate that the governmentpossessedrights pursuant to contracts with the utility providers that it failed to exercise to address the utility provider's conduct. In this respectthis appeal is different from

### AmericanInternational Constructors, Inc., ENG BCANos. 3633, 3667, 77-2 BCA**~** 12,606, upon which appellant heavily relies. There, the government entered into a contract with a construction company that required the construction company to
use a particular shipper with which the government also had a contract. Id. at 61,098. The shipper delayed performance, delaying the construction contractor's performance. Id. at 61, 103. That Boardheld that the governmentbreached the implied duty ofgood faith and fair dealing by failing to exercise its rights under its contract with the shipper to assist the construction contractor in its problems with the shipper. Id. at 61, 106-07. However, the Boardrelied for thatholding upon specific provisions ofthe government's shipping contract, including a provision thatwouldhave allowed for the use ofvessels not owned bythe shipping contractor in the event ofthe shipper's failure to perform. 

### ld. 4 Here, appellant does not pointto any provision ofany contract betweenthe government and RGEC orFBWS to support its contention that the government possessed control arising from its contracts with the utility providers that the government failed to exercise. Appellant further contends that the government's allegedbreaches ofthe implied covenant ofgood faith and fair dealing include policy, program, and contract formation actions thatthe governmenttook before awarding the delivery order. We reject that contention as well. The government could not have breachedthe covenant ofgood faith and fair dealing by its pre-award conduct because the covenant did not exist until the contract (that is, the contract at issue in this matter, Delivery Order No. 0006) was signed. 

### See Scott Timber Co. v. 

### UnitedStates, 692 F.3d 1365, 1372 (Fed. Cir. 2012); 

### see also CAE USA, Inc., ASBCANo. 58006, 13 BCA**~** 35,323 at 173,390 (rejecting allegations ofbreach ofthe implied covenantbased solely on preaward conduct). Although every contract imposes upon each party a duty ofgood faith and fair dealing in its performance and its enforcement, that duty does not deal with good faith in the formation ofa contract. 

### Scott Timber, 692 F.3d at 1372 (quoting RESTATEMENT (SECOND) OF CONTRACTS§ 205 (1981)).

4 In any event, decisions ofotherBoards are not binding on this Board.



### 8To be sure, pre-contract actions by the government can bear onthe question of whether the governmenthas complied with its obligations that are eventually imposed by the contract. Id. Forexample, ifthe contract obligates the governmentto take action within a reasonable period, delays by the government even before contract signing may bear onthe reasonableness ofdelays during the period that the contract is in force. Id. However, this is not such a case. The contract did not obligate the government to help appellant negotiate with the utility providers; therefore, none of the pre-contract events that resulted in the contract assigning that obligation to appellant are relevant to whetherthe governmentbreached the contract. Nor is this a case in which parties' pre-controversy actions are relevant in determining what the parties intended by agreeing to contract language whose precise meaning is not clear. See MetcalfConstruction, 742 F.3d at 997. Here, the Special Notice is clear and unambiguous: it assigned to appellant the responsibility to negotiate with the utility providers (finding 2). Appellant appears to suggestthat the government was obligatedto have taken the utility providers' property (app. reply at 32-33, 37). Ifso, we rejectthat suggestion. Ofcourse, the governmentpossesses the power, as sovereign, to take privateproperty. See El-ShifaPharmaceuticalIndus. Co. v. UnitedStates, 378 F.3d 1346, 1356 (Fed. Cir. 2004). However, an act or omission ofthe government as sovereign is not itselfa breach ofa government contract; for a sovereign act or omissionto result in a contract breach, the contract must have promised thatthe sovereign act would not occur, orthat

### it would occur and did not. See Connor Bros. Constr. Co. v. UnitedStates, 550 F.3d 1368, 1371-72, 1374-75 (Fed. Cir. 2008). Here, appellantpoints to no provision ofthe delivery order that provides that the government would exercise its sovereignpowerto take the utility providers' property. Superior Knowledge Appellant contends that before awarding the delivery order, the government withheld knowledge thatthe utility providers took the positionthat only they could perform FortBliss utility system work, and thatthe utility providers could not estimate the cost ofsuchwork, orwould charge a premium for thatwork. To the extent that appellant asserts a "superiorknowledge" claim, that claim fails. The superior knowledge doctrine imposes upon a contracting agency an implied duty to disclose to a contractor otherwise unavailable information regarding some novel matter affecting the contractthat is vital to its performance. Scott Timber, 692 F.3d at 1372. However, where a contractorhas the opportunity before contract entry to obtain the knowledge that the governmenthas, the government's knowledge is not superior. See Grumman Aerospace Corp. v. Wynne, 497 F.3d 1350, 1357 (Fed. Cir. 2007).

9Here, the information that appellant contends the government withheld was otherwise available; indeed, before submitting its proposal, appellant learned much of that information. Appellant learned from RGEC that "RGEC'stypical role involve[d] anything withthe electrical utility system," that RGEC was "responsible for all ofthe demolition ofexisting and installation ofnew distribution utilities," and that RGEC
was "unable to fully comment on the workto be completed on the project" (finding 9). Appellantread in Inquiry No. 3283285 thatpricing from RGEC and FBWS was not available, and that RGEC and FBWS were not goingto allow contractors to self-perform (findings 10, 13). Appellant had Inquiry No. 3276130, which raised the issue whether "the contractor [should] assume, depending on the utility owner, [that] the contractor may be required to sub-contract directly with the utility owner in order to complete the work" (finding 7). And only hours before submitting its proposal, appellant heard from SBC Global that "[RGEC] will not let anyone do their work," and that the costproposal that appellant had received from SBC Global for electrical utility system work might end up being less than what RGEC would charge (finding 13). With and despite that knowledge, appellant submitted its proposal, evidently having decided that the "risks"that appellant's estimator had raised with appellant's ownertwo days earlier were worth taking (findings 13, 14).

In addition, information regarding what FBWS might charge for waterutility system workwas available before appellant submitted its proposal, from FBWS. Had appellant contacted FBWS before submitting its proposal, it might have received (as did J.D. Abrams and Sundt) an $11,071,000 estimate for the water utility system work (finding 8), an amount inthe same range as the eventual $11,726,123 that FBWS ultimately charged appellant for thatwork (finding 21).

Constructive Change Appellant contends that the government constructively changed the delivery order by requiring appellant to contract with the utility providers (as opposedto allowing appellant to perform the utility system work itself), inconsistent with the delivery order's provisions. 5 To demonstrate a constructive change, appellant must show (1) that it performed work beyondthe contract requirements, and (2) that the additional work was ordered, expressly or impliedly, by the government. Bell/Heery,

5 The Board allows the post-hearing amendment to appellant's complaint, and finds jurisdictionto entertain appellant's "constructive change" argument. Although appellant did not presentthat theory in its claimto the CO, it bases that theory upon the same operative facts that it presented to the CO. ACE Constructors, Inc.
v. UnitedStates, 499 F.3d 1357, 1361 (Fed. Cir. 2007). Those facts included that,
on 2 September 2010, the government sent appellant the letter in which the CO stated that appellant's "soleremedy is to continue negotiating with the utility providers until a reasonableprice is obtained" (R4, tab 26 at 7 & ex. 6).

10739 F.3d at 1335. Appellant does not meet thattest. Appellant does not demonstrate that interacting with the utility providers was performance ofwork beyondthe requirements ofthe delivery order (or that the utility providers performed any "additional work"). After all, pursuant to the Special Notice, appellant's scope of work expressly 

### included "coordinatingproject utility requirements with the owners of the privatizedutility systems," and "negotiating and finalizing utility system work with the utility providers" (finding 2). That means that howeverthe utility systems work
was to be accomplished, coordination, negotiation, and finalization ofthat work with the utility providers would be required; contrary to any suggestion by appellant that it couldperformthe utility system work without involving the utility providers at some stage (even ifonly to negotiate withthe utility providers that appellant would "self-perform").6 Indeed, appellant ultimatelyperformedthe coordination, negotiation, and finalization with the utility providers that producedthe service agreements-albeit several months after award (findings 21-22).
Moreover, appellant does not demonstrate that the government dictated any term ofeither service agreement, much less that any such term is "additional"to the delivery order. In thatregard, appellant does not demonstrate that the government mandated that it hire the utility providers to perform the utility systems work; the CO's 2 September2010 statementthat appellant's "sole remedy [was] to continue negotiating withthe utility providers until a reasonable price is obtained" (finding 18)
was in response to appellant's request for help with the utility providers' pricing (finding 17), and was consistent with the Special Notice's provision that "contractors shall be responsible for negotiating and finalizing utility system work with the utility providers" (finding 2). Because the delivery order also providedthat "[t]he Contractor will include its cost for such work in its costproposal" (finding 2), appellant bore the risk ofthe cost ofthat work.

Itis always more difficult to negotiate after the fact when, as in this case, appellant was clearly put on notice to coordinate with the utility providers priorto bid submittal (finding 2). Here, appellant did not (finding 15), and must bearthe cost of its decision. Forthese reasons, appellant is not entitled to any additional compensation for utility system work.

6 At least as late as 20 May 2010, appellant appeared to take the position that the utility providers 

### wouldbe involved in the accomplishment ofthe utility system work. On that date, appellant contacted RGEC for clarification "as to what [appellant's] role was goingto be and what [RGEC's] role was going to be" (finding 9).

11CONCLUSION Accordingly, the appeal is denied.

Dated: 16 October 2014

I concur



### 0 ON Administrative Judge Acting Vice Chairman Armed Services Board ofContractAppeals Administrat ve Judge Armed Services Board ofContract Appeals

I concur

# ~ Administrative Judge Acting Chairman Armed Services Board ofContractAppeals

I certify thatthe foregoing is a true copy ofthe Opinion and Decision ofthe Armed Services Board ofContractAppeals in ASBCANo. 57825, Appeal ofTug Hill Construction, Inc., rendered in conformance withthe Board's Charter.

Dated:

12 JEFFREY D. GARDIN R.ecorder,Armed Services Board ofContract Appeals