Court Opinion

ID: 3201626
Source: CourtListenerOpinion
Date Created: 2016-05-09 18:00:54.737265+00
Date Added: 2024-06-11T14:28:15.709134
License: Public Domain

ARMED SERVICES BOARD OF CONTRACT APPEALS

Appeal of --                                )
                                            )
Marshall's Electric, Inc.                   )      ASBCA No. 59749
                                            )
Under Contract No. FA4613-13-C-0011         )

APPEARANCE FOR THE APPELLANT:                      Ms. Cynthia L. Marshall
                                                    Secretary/Treasurer

APPEARANCES FOR THE GOVERNMENT:                    Col Matthew J. Mulbarger, USAF
                                                    Air Force Chief Trial Attorney
                                                   Lawrence M. Anderson, Esq.
                                                    Trial Attorney

                OPINION BY ADMINISTRATIVE JUDGE DELMAN

       In this appeal Marshall's Electric, Inc., (appellant or MEI) disputes the
termination of its contract for default by the Department of the Air Force
(government). The parties agreed to waive an oral hearing and to present their
positions on the record under Board Rule 11. We have jurisdiction under the Contract
Disputes Act, 41 U.S.C. §§ 7101-7109. For reasons stated below, we deny the appeal.

                               FINDINGS OF FACT

       1. On 27 June 2013, the government issued a solicitation for Repair Fire
Protection/Detection Systems, Weapons Storage Area, at F.E. Warren Air Force Base,
Wyoming (Item 0001 ). The project was targeted as a 100% small business set-aside.
(Compl., ex. 1)

       2. The solicitation and the eventual contract included FAR 52.228-15,
PERFORMANCE AND PAYMENT BONDS-CONSTRUCTION (OCT 2010). Block 12 of
Standard Form 1442, "Solicitation, Offer, and Award," provided that these bonds were
to be furnished to the government within 20 calendar days of award. The contract also
contained FAR 52.249-10, DEFAULT (FIXED-PRICE CONSTRUCTION) (APR 1984).
(Comp!., ex. 1 at 13)

      3. The government awarded Contract No. FA4613-13-C-0011 to appellant on
25 September 2013. Accordingly, appellant was to furnish the bonds to the
government no later than 15 October 2013. Appellant was to complete the project
within 195 calendar days after receipt of notice to proceed. (Comp I., ex. 6)*

       4. We take judicial notice that between 1 October 2013 and 16 October 2013,
there was a federal government shutdown. As a result of this shutdown, the offices of the
Small Business Administration (SBA) were closed. According to appellant, this closure
impacted the processing of its application for SBA bond guarantees (see generally
13 C.F.R. § 115, Surety Bond Guarantee). However the record shows that appellant did
not request the bonds from its surety and execute the necessary SBA fee authorization
form until 11November2013 (compl., ex. 9), nearly one month after the government
reopened and nearly one month after bonds were required to be furnished to the
government.

       5. On 13 November 2013, MEI was notified by its surety that its bond request
was denied due to outstanding claims related to its work as a subcontractor on a
contract between the U.S. Army Corps of Engineers and Graham Construction
Services at Minot Air Force Base, North Dakota (compl., exs. 11, 12). Appellant
advised the government of this matter by email dated 14 November 2013, stating in
pertinent part as follows:

              Until we can get this project closed out our bonding is on
              hold, which directly impacts our ability to bond this
              project. We apologize for the disruption this may cause for
              this project.

(Compl., ex. 12 at 2)

       6. By memorandum dated 24 December 2013, entitled in part "Potential
Termination for Default," the contracting officer (CO) issued a notice to appellant, in
the nature of a notice to show cause, as follows:

              1. You are hereby notified that, since you have failed to
              provide bonding of subject contract in accordance with the
              contract terms (20 days following contract award), the
              Government is considering terminating the contract for
              default in accordance with FAR 52.249-10 "Default

* The contract at Section F-Deliveries or Performance provided for a "winter
      exclusion" period prohibiting certain outdoor work between 1 October 2013
      and 30 May 2014 (R4, tab 1 at 7), absent written approval of the contracting
      officer. Thus the contract completion date was 9 December 2014 (R4, tab 8).
      Neither party contends however that this exclusionary period had any bearing
      on the default termination.

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              (Fixed-Price Construction)." Pending a final decision in
              this matter, it will be necessary to determine whether your
              failure to perform arose out of causes beyond your control
              and without fault or negligence on your part. Accordingly,
              you are hereby afforded the opportunity to present, in
              writing, any facts bearing on the question to the
              undersigned within thirty calendar (30) days after receipt
              of this notice.

(Compl., ex. 15)

       7. Appellant replied to this notice by letter dated 7 January 2014. Appellant
explained the nature of its problems on the Minot job and its attempt to obtain bonding
on the subject contract. Appellant also stated as follows:

             Unfortunately, the government shutdown in October
             greatly impacted our bonding. Ifwe were able to submit
             our bonding request the first or second week of October, it
             would have been approved and the [subject] project would
             not have been impacted by the USACE Minot AFB
             project.

             In closing, we humbly request a 45 day grace period to
             obtain bonding. The USACE Minot AFB project will be
             completely closed out and all vendors/suppliers will be
             paid in full with final lien releases issued. We will await
             your decision.

(R4, tab 6 at 24-25) Appellant has not provided any evidence to show that if it had
submitted its bonding request in early October 2013, the bond request would have
been approved and would not have been impacted by the Minot job.

       8. The government allowed the next 45 days to pass and did not default
terminate the contract. Appellant did not obtain bonding within these 45 days, nor was
the Minot project closed within these 45 days, nor was appellant able to represent to
the government when the Minot project would close and when it would obtain
payment and performance bonds for this project.

      9. By memorandum to appellant dated 15 April 2014, entitled "Show Cause,"
the CO again notified appellant of its failure to provide bonding as required by the

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contract and that the government was considering a termination for default. The
government gave appellant another opportunity to provide evidence excusing its
failure to perform. (Compl., ex. 18)

      10. Appellant replied to the show cause notice by letter dated 28 April 2014.
Appellant restated its attempt to obtain bonding, the impact of the government
shutdown and its difficulties on the Minot job. Appellant stated as follows:

             With reference to the Minot, North Dakota project, we
             were a subcontractor and suffered losses directly relating
             to one of our direct subcontractor's failure. With this
             subcontractor we did not require bonding, [sic] if we
             would have required bonding this would have mitigated
             the losses we are now experiencing. The subcontractor
             failure has resulted in a lawsuit which is pending.

             We respectfully request that you consider not terminating
             for default. Many of the factors which led to our inability
             to produce bonding for this project were not within our
             control. We were prepare [sic] to perform this contract but
             due the mitigating factors outlined above were unable to
             obtain the necessary bonding.

(R4, tab 6 at 6-7) (Emphasis added)

       11. By email dated 29 May 2014, the government sought an update from
appellant on the bonding issue. Appellant replied by email on the same day, as
follows:

             I apologize for my delay in responding. We are still
             working to get the Minot project closed out. Graham
             Construction [the prime contractor] is refusing to close out
             this project until the pending lawsuit with our failed
             subcontractor is resolved although Graham is not and
             never has been named in the suit. At this point in time, we
             are closing out other "pre-bonded" projects and our
             bonding company is stepping back until Minot can be
             completely closed out.

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              We firmly believe that ifthe government shut down would
              not have occurred we could have secured bonding for your
              project before the Minot project impacted our bonding.

(R4, tab 6 at 5)

       12. By memorandum dated 22 September 2014, the government issued to
appellant a "Notice of Default Termination." This notice stated in part as follows:

              Your inability to receive bonding on the project prevented
              the government from issuing a notice to proceed, and the
              contract terms cannot be fulfilled.

              3. You received your copy of the contract on or about
              25 September 2013, thereby establishing 9 December 2014
              as the delivery date for Item 0001, and a deadline of
              20 days from contract award to provide the necessary
              bonding.

              4. After due consideration of all the pertinent facts, the
              undersigned Termination Contracting Officer hereby finds
              and determines that you have failed to complete the
              requirements of the subject contract within the time
              required by the terms thereof and that said failure did not
              arise out of causes beyond your control or without fault or
              negligence on your part. Therefore, you are hereby
              notified that the Government, by this written notice,
              terminates subject contract, including your right to proceed
              with performance there under [sic], in its entirety for
              default in accordance with Federal Acquisition Regulation
              52.249-10 "Default (Fixed-Price Construction)"
              April 1984, effective upon receipt of this notice.

(R4, tab 8)

      13. Appellant filed a timely notice of appeal from this termination decision on
15 December 2014.

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                                       DECISION

       The government has the burden to prove that its default termination of this
contract was justified. Lisbon Contractors, Inc. v. United States, 828 F .2d 759 (Fed.
Cir. 1987). We believe that the government has met its burden here.

         Under paragraph (a) of the Default clause of the contract, FAR 52.249-10, the
government may default the contractor if the contractor "fails to prosecute the
work ... with the diligence that will insure its completing within the time specified in
this contract." A contractor may not start work until it furnishes its bonds or other
acceptable alternative payment protections to the government. FAR 28.102-1 (c).
Appellant failed to furnish the required performance and payment bonds and failed to
provide a date by which it would be able to do so. Perforce, it was unable to advise
the government when it would be able to start the work on this project. This was
tantamount to appellant's failure to prosecute the work with the diligence to insure
timely completion, thereby establishing a ground for default in accordance with
paragraph (a) of the Default clause.

       The burden then shifts to appellant to show under paragraph (b) of the Default
clause that the default was excusable, i.e., that the contractor's delay arose from
"unforeseeable causes beyond the control and without the fault or negligence of the
contractor." Appellant points to the U.S. Army Corps of Engineers and/or the prime
contractor on the Minot project as being responsible for its predicament. However,
appellant's inability to obtain bonding on this contract was due to a dispute with a
lower tier subcontractor on the Minot project that ended up in litigation and delayed
the close-out of the project and impacted its bonding capacity (findings 5, 10). In
correspondence with the government, appellant stated that it did not require bonding
with this subcontractor on the Minot project and if it would have done so, it would
have been able to mitigate its losses (finding 10). Given these facts, appellant has not
shown that its inability to obtain bonding here was an unforeseeable cause that was
beyond its control and without its fault or negligence.

       We have held a default excusable, however, where it has been shown that the
government's wrongful action against a contractor on one contract was the cause of its
financial difficulties on other contracts. R-D Mounts, Inc., ASBCA No. 14827 et al.,
71-1BCA'iJ8643, recon. denied, 71-1BCA'iJ8725; see generally JOHN CIBINIC, JR.,
RALPH C. NASH, JR., ADMINISTRATION OF GOVERNMENT CONTRACTS 571 (3rd ed.
1995) (and cases collected). However, in Mounts the government acted wrongfully
under an earlier contract with the contractor that subsequently impacted that
contractor's other contracts with the government. Here, the earlier Minot contract was
not a contract between the government and appellant. Appellant was a subcontractor
on the Minot project (finding 10). The government's contractual duties flowed to the
prime contractor on the Minot project, not to appellant. Appellant has failed to

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establish a reasonable connection between any government violation of the prime
contract at Minot, its flow-down effect upon appellant as a subcontractor and its
inability to secure bonding here.

        Appellant also contends that its inability to secure bonding was attributable to
SBA administrative delay in processing its application for SBA bond guarantees
resulting from the government shutdown. Appellant's application was not timely
filed; it was filed on 11 November 2013, roughly 45 days after award, and almost a
month after the government reopened and nearly a month after the bonds were
required to be furnished to the government (finding 4). Appellant does not provide
any evidence linking any SBA administrative delay with the disputes on the Minot job,
nor does it provide any evidence to support the proposition that its bonding request
would have been approved absent the government shutdown.

       We have considered appellant's remaining arguments but they are not
persuasive. Appellant has not shown that its default on this contract was excusable.
Accordingly, we find that the government was justified in terminating this contract for
default under the Default clause of the contract. In addition, a contractor's failure to
provide performance and payment bonds is a breach of a condition that can support a
default termination. Ruffin 's A-1 Contracting, Inc., ASBCA No. 38343, 90-3 BCA
~ 23,243 at 116,626 (and cases cited). This is a separate and distinct ground for
default termination.
                                    CONCLUSION

        The government has shown that its default termination of this contract was
justified. We deny the appeal.

       Dated: 7 March 2016

                                                    ministrative Judge
                                                 Armed Services Board
                                                 of Contract Appeals

(Signatures continued)

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I concur                                         I concur

                                                RICHARD SHACKLEFORD
Administrative Judge                            Administrative Judge
Acting Chairman                                 Vice Chairman
Armed Services Board                            Armed Services Board
of Contract Appeals                             of Contract Appeals

     I certify that the foregoing is a true copy of the Opinion and Decision of the
Armed Services Board of Contract Appeals in ASBCA No. 59749, Appeal of
Marshall's Electric, Inc., rendered in conformance with the Board's Charter.

      Dated:

                                                JEFFREY D. GARDIN
                                                Recorder, Armed Services
                                                Board of Contract Appeals

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