Failure to Seek Pre-Bid Clarification Dooms Claim

By John S. Mrowiec

Sometimes specifications are confusing. They may be internally inconsistent or apparently conflict with drawings.

The contractor might believe it is entitled to rely on the doctrine that ambiguous contract documents are “construed against the drafter” and reach its own conclusion in determining the scope of what inconsistent, owner-supplied contract documents require to be built and, consequently, the bid price.

But as a recent case decided, it would have been wiser for the contractor to have asked for clarification before the bid rather than to assume the contractor’s understanding would prevail.

Case Involves Veterans’ Facility

The case of West Bay Builders, Inc. v. United States, 2008 U.S. Claims LEXIS 361 (Fed. Cl. Nov. 26, 2008) involved renovation of the interior finish of a Veterans Affairs health-care building. The owner awarded the contract to West Bay Builders Inc.

The existing building had a concrete floor slab. The specifications required the slab to be patched and vinyl composition tile to be installed on the slab. The dispute concerned to what extent contractor was obligated to apply moisture sealant to the floor.

The successful contractor did not attend either of two pre-bid walkthroughs with the owner. Nor did the successful contractor submit any pre-bid request for clarification about the concrete floor moisture sealing requirements. The contractors’ $1,257,000 gross bid included only $2,000 for floor moisture sealant. The contractor’s performance schedule contained an activity for sealant application.

The specifications set forth terms regarding calcium chloride tests of the floors for moisture penetration levels. During performance, the contractor had two firms test.

The first found levels of 7.52 and 4.58 lbs of moisture migration in two 1,000-sq-ft areas. The contractor also hired a second testing firm and received results of 8, 9.8, 8 and 9.3 in four tested areas.

The contractor submitted a Request for Information to the owner’s contracting officer reporting the first set of test results and requesting confirmation that, based on those results, the concrete floor sealing Specification Section 9800 did not require sealant application. The contractor relied on a paragraph in the specifications that said the moisture sealant “system” “should be installed in all cases where the starting calculation is 15.0 lbs or more.”

The owner responded to the RFI, insisting that sealant application was required. The owner relied on language in the specifications that the owner contended required sealant to bring the results to 3 lbs.

The contractor submitted a change proposal for $157,681 and requested a 30-day time extension. Subsequently, the proposal was revised to $128,833 plus time extension.

Six months later, the owner’s contracting officer granted the claim in the amount of $128,279 but omitted a time extension and extended duration costs. The contractor inquired how the proposed change order would address the time extension and $14,227 in delay costs.

Three months later, the owner’s contracting officer reversed himself and denied the claim in its entirety. The owner reasoned that the specifications contained a patent ambiguity that required the contractor to inquire pre-bid. Although the owner had denied the claim, in the same letter, the owner’s contracting officer offered a compromise of payment of 50% of the amount the contracting officer had previously found due.

After the contractor rejected the settlement offer, the owner’s contracting officer issued a final decision denying the claim. The contractor brought suit. The parties each moved for summary judgment. The Court of Federal Claims issued a 112-page opinion.

Key Definition of ‘Ambiguity’

The court set forth legal principles concerning contract interpretation. Among those principles is that “a contract provision is ambiguous ‘only if susceptible to more than one reasonable meaning’”, West Bay Builders, Inc., 2008 U.S. Claims LEXIS 361, *44, quoting Barron Bancshares, Inc. v. United States, 366 F.3d 1360, 1375-76 (Fed. Cir. 2004) “and each meaning ‘is found to be consistent with the contract language,’” West Bay Builders, Inc., 2008 U.S. Claims LEXIS 361, *44 quoting Enron Federal Solutions, Inc. v. United States, 80 Fed. Cl. 382, 394 (2008).

It is well-settled that “[a]mbiguities in a government contract are normally resolved against the drafter,” West Bay Builders, Inc., 2008 U.S. Claims LEXIS 361, *44-45 quoting Triax Pacific, Inc. v. West, 130 F.3d 1469, 1474 (Fed. Cir. 1997). “However, an exception to this rule applies depending upon the type of ambiguity contained in the contract,” Id. “[A]fter a court finds contract terms to be ambiguous and ‘susceptible to more than one reasonable interpretation, it must first determine whether the ambiguity is latent or patent,’” West Bay Builders, Inc., 2008 U.S. Claims LEXIS 361, *45 quoting Burchick Construction Co. v. United States, 83 Fed. Cl. 12, 19 (2008).

“A patent ambiguity is one that is ‘obvious, gross, glaring, so that [the] plaintiff contractor had a duty to inquire about it at the start,’” West Bay Builders, Inc., 2008 U.S. Claims LEXIS 361, *45-46 quoting H&M Moving, Inc. v. United States, 499 F.2d 660, 671 (Ct. Cl. 1974). “If the contractor or bidder ‘fails to inquire with regard to the provision, [its] interpretation will fail,” West Bay Builders, Inc., 2008 U.S. Claims LEXIS 361, *48 quoting NVT Technologies, Inc. v. United States, 370 F.3d 1153, 1162 (Fed. Cir. 2004).

The patent ambiguity rule is designed (1) to ensure, as much as possible, that all bidders share a common understanding of the scope, and (2) to prevent contractors from adopting narrow interpretations in preparing their bids and, then, after award, seeking price adjustment, West Bay Builders, Inc., 2008 U.S. Claims LEXIS 361, *48-49 citing Triax Pacific, Inc., 130 F.3d at 1475.

“By contrast [to a patent ambiguity], a latent ambiguity is a ‘hidden or concealed defect which is not apparent on the face of the document, could not be discovered by reasonable or customary care, and is not so patent and glaring as to impose an affirmative duty on plaintiff to seek clarification,’” West Bay Builders, Inc., 2008 U.S. Claims LEXIS 361, *49 quoting Diggins Equipment Corp. v. United States, 17 Cl. Ct. 358, 360 (1989). “A latent ambiguity ‘arises only once the contract is applied’ and ‘generally becomes evident when, considered in light of the objective circumstances, two conflicting interpretations appear reasonable,’” West Bay Builders, Inc., 2008 U.S. Claims LEXIS 361, *49 quoting Input/Output Technologies, Inc. v. United States, 44 Fed. Cl. 65, 72 n.10 (1999).

If there is a latent ambiguity, and that “ambiguity cannot be cleared up by reading the contract as a whole or looking to the circumstances attending the transaction and the conduct of the parties, the ambiguity should be resolved against the party who drafted the contract,’” West Bay Builders, Inc., 2008 U.S. Claims LEXIS 361, *50 quoting Gardiner, Kamya & Associates, P.C. v. Jackson, 467 F.3d 1348, 1352 (Fed. Cir. 2006). In summary, “[i]f the ambiguity is latent and [the contractor’s] interpretation is reasonable, [the contractor] will prevail over an equally reasonable interpretation by [the owner],’” West Bay Builders, Inc., 2008 U.S. Claims LEXIS 361, *51 quoting Diggins Equip. Corp., 17 Cl. Ct. at 360.

Unfortunately for the contractor, the Court “conclude[d] that the ambiguities presented in the specifications are glaring and are apparent on the face of the contract itself,” West Bay Builders, Inc., 2008 U.S. Claims LEXIS 361, *98-99. In one paragraph of Section 09800, the specifications required application of the “system” to reduce moisture levels to within 3 lbs while simultaneously recommending application only in cases where the “starting calculations” measured 15 lbs or greater. A provision of Specifications Section 09660 directed the contractor to “seal for moisture content of 15 lbs.” And, the specification for tile application required the contractor to follow tile manufacturer’s recommendations. Those recommendations mandated sealing at the 5- to 6-lb range.

The Court held the contractor had an affirmative duty to inquire of the meaning of these patent ambiguities before submitting its bid. Because the contractor failed to do so, it could not rely on the rule of construction against the drafter. The contractor was denied recovery on that basis without the Court reaching the issue of whether the contractor’s interpretation was reasonable, West Bay Builders, Inc., 2008 U.S. Claims LEXIS 361, *100.