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FMG Law Blog Line

Contractors Win Big in Recent Federal Court Ruling

Posted on: March 27th, 2014

By: Gautam Reddy 

A recent federal court ruling marked a decisive victory for contractors engaged in federal government projects. The case, Metcalf Construction Co. v. United States, Case No. 2013-5041 (Fed. Cir. Feb. 11, 2014), involved two majors issues: (1) what standard the government is held to in its duty to act in good faith towards contractors; and (2) whether the disclaimers the government places in its pre-bid site reports shield it from the risk of differing site conditions.

As to the first issue, the court lowered the standard required to establish that the government lacked good faith in dealing with a contractor. Contractors no longer have to show that the Government’s actions were targeted specifically towards them in an attempt to avoid payment.  Practically speaking, this makes it easier for contractors to allege that the government has acted in bad faith.

Second, the court held that the government cannot shift the risk and costs of differing site conditions to the contractor by placing disclaimers in the contract or pre-bid site reports. For example, in this case, the government provided a soil report that prospective contractors relied on to make their bids. The report contained a disclaimer stating that it was only for preliminary use and that the contractor would need to perform an independent investigation. While preparing the site for construction, the contractor discovered that the soil was not as described by the government report. In addition, this difference was not immediately apparent but required an extensive analysis.  As a result, the contractor incurred additional, unforeseen costs during construction. The court ruled that the government could not avoid paying the contractor for these additional costs by relying on its disclaimers.

Overall, this ruling strengthens the position of contractors involved in disputes with the Federal government. Contractors now have more leeway to allege bad faith on the part of the government and can bypass disclaimer language to recover costs associated with differing site conditions.

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