ContractsProf Blog

Editor: D. A. Jeremy Telman
Valparaiso Univ. Law School

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Thursday, August 7, 2014

Supremes Settle Their Breach of Contract Action

Oblique_facade_3,_US_Supreme_CourtIt is not often that the Supreme Court of the United States entertains a contract issue (which is, coincidentally, one of the main reasons it is such a delight to teach contract law).  The Supreme Court did, however, recently settle a contract dispute of its own.

According to reporting by Tony Mauro at the National Law Journal:

The curious case of the trapezoidal windows at the U.S. Supreme Court is closed.

Documents filed recently in lower courts indicate that a contentious seven-year dispute over mistakes and delays in the renovation project at the high court has been settled.

“Everybody was worn out by the litigation,” Herman Braude of the Braude Law Group said this week. Braude represented Grunley Construction Company, the main contractor for the modernization project on the nearly 80-year-old building. “All good things have to come to an end,” he said.

The most contested feature of the litigation was the belated discovery by contractors that more than 150 large windows, many of which look out from justices’ chambers, were trapezoidal—not strictly rectangular. The building's persnickety architect, Cass Gilbert, designed them that way so they would appear rectangular from below, both inside and outside the building.

But Grunley and its window subcontractor failed to measure all four sides of the windows before starting to manufacture blast-proof replacements, so some of them had to be scrapped.

Grunley claimed it was not obliged to make the measurements, asserting that the government had “superior knowledge” of the odd shape of the windows that it should have shared with contractors. The company asked for an extra $757,657 to compensate for the extra costs of fabricating the unconventional windows.

But the federal Contract Appeals Board in 2012 rejected Grunley’s claim, stating: “We find inexcusable the firms’ failure to measure a necessary component of the windows prior to installation.”

Grunley appealed to the U.S. Court of Appeals for the Federal Circuit and placed other contract disputes before that court and the U.S. Court of Federal Claims. Both sides eventually agreed to settlement negotiations.

In February, both parties reported to the federal circuit that “the parties are now in the final process of closing out the underlying construction contract and settling various requests for equitable adjustment.” They also told the federal circuit that “the settlement discussion are at a very high level between the parties … and are being primarily led by the principals of each party, not the litigation counsel.”

Subsequent orders by both courts have dismissed the litigation, but no details of the settlement are available on the docket of either court.

Attempts to obtain details of the settlement have been unsuccessful so far. The Architect of the Capitol—the congressional agency that has jurisdiction over the Supreme Court building and was the defendant in the litigation—did not respond to a request for comment. The U.S. Department of Justice’s civil division, which handled the litigation for the architect's office, did not respond as of press time, and neither did anyone from the Supreme Court.

Braude, Grunley's attorney, was reluctant to give details. “The dollar figure doesn’t matter,” he said. But when pressed, Braude said his client “got some” of the $15 million in extra compensation it was seeking from the government, beyond its original $75 million contract for the work.

“Everybody agreed to an adjusted contract price that recognizes the budget limitations of the government,” Braude said, adding that the settlement was “satisfactory to all parties. Nobody was jumping for joy, but everybody was a little happy.” Braude also said the Supreme Court signed off on the settlement.

John Horan of McKenna Long & Aldridge, an expert on government contract disputes, said there is no general rule about the confidentiality of settlements, and sometimes “the government doesn’t go out of its way to make settlements public.” But a document spelling out terms of the agreement is sometimes made part of the public record or can be obtained through the Freedom of Information Act, he said. The Supreme Court and the Architect of the Capitol, an arm of Congress, are exempt from the FOIA.

The modernization project at the Supreme Court broke ground in 2003 and the target completion date was 2008, though some follow-up work is still underway. The court's aging infrastructure—including one of the oldest Carrier air-conditioners in existence—was the trigger for the project, which has cost an estimated $122 million overall.

More here.  Great basis for an exam hypo.  And, wow! -- to be the attorney that sues the Supreme Court!

August 7, 2014 in Government Contracting, In the News, Labor Contracts | Permalink | Comments (0) | TrackBack (0)

Tuesday, July 8, 2014

Weekly Top Tens from the Social Science Research Network

SSRNSSRN Top Downloads For Contracts & Commercial Law eJournal
RECENT TOP PAPERS

RankDownloadsPaper Title
1 215 The Privatization of Compliance 
Scott Killingsworth 
Bryan Cave LLP 
2 157 A Psychological Account of Consent to Fine Print 
Tess Wilkinson‐Ryan 
University of Pennsylvania Law School 
3 144 Beauty and Ugliness in Offer and Acceptance 
Kenneth K. Ching 
Regent University - School of Law
4 128 A Study of the Risks of Contract Ambiguity 
Preston M. Torbert 
University of Chicago Law School 
5 121 Personal and Proprietary Remedies for Breach of Confidence: Nearer to Breach of Fiduciary Duty or Breach of Contract? 
Graham Virgo 
University of Cambridge - Faculty of Law 
6 118 Bankers and Chancellors 
William W. Bratton and Michael L. Wachter 
Institute for Law and Economics, University of Pennsylvania Law School and University of Pennsylvania Law School - Institute for Law and Economics 
7 83 Review Essay: Reading the Dream Machine: The Untold Story of the Notorious V-22 Osprey, by Richard Whittle, in Light of the Defense Acquisition Performance Study 
Steven L. Schooner and Nathaniel E. Castellano 
George Washington University - Law School and George Washington University - Law School 
8 77 Bylaws Mandating Arbitration of Stockholder Disputes? 
Claudia H Allen 
Katten Muchin Rosenman LLP
9 75 The First Sale Doctrine and the Economics of Post-Sale Restraints 
Ariel Katz 
University of Toronto - Faculty of Law 
10 63 'Gap Filling' by Arbitrators 
Alan Scott Rau 
University of Texas at Austin School of Law 

SSRN Top Downloads For LSN: Contracts (Topic)
RECENT TOP PAPERS 

RankDownloadsPaper Title
1 157 A Psychological Account of Consent to Fine Print 
Tess Wilkinson‐Ryan 
University of Pennsylvania Law School 
2 143 Beauty and Ugliness in Offer and Acceptance 
Kenneth K. Ching 
Regent University - School of Law 
3 128 A Study of the Risks of Contract Ambiguity 
Preston M. Torbert 
University of Chicago Law School 
4 121 Personal and Proprietary Remedies for Breach of Confidence: Nearer to Breach of Fiduciary Duty or Breach of Contract? 
Graham Virgo 
University of Cambridge - Faculty of Law 
5 64 'Selling Out' and the Impact of Music Piracy on Artist Entry 
Joshua S. Gans 
University of Toronto - Rotman School of Management 
6 63 'Gap Filling' by Arbitrators 
Alan Scott Rau 
University of Texas at Austin School of Law 
7 57 Of Priors and of Disconnects 
Margaret Jane Radin 
University of Michigan Law School 
8 50 Between Property Law and Contract Law: The Case of Securities 
Matthias Haentjens 
Leiden University - Leiden Law School 
9 50 Behavioral Trade-Offs 
Yuval Feldman and Orly Lobel 
Bar-Ilan University - Faculty of Law and University of San Diego School of Law 
10 48 A Eulogy for the EULA 
Miriam A. Cherry 
Saint Louis University - School of Law 

 

 

July 8, 2014 in Government Contracting, Recent Scholarship | Permalink | TrackBack (0)

Thursday, June 26, 2014

ABA Academy Presents: Workshop on Bid Protests

Register Now

Thursday, 
June 26, 2014

1:00 PM - 2:30 PM ET

Webinar

1.5 CLE credits requested

$195 General Public
$150 ABA Members
$95 Sponsor Members

Sponsor

Section of Public Contract Law

Bid Protest 101: An Introduction to the Federal Bid Protest Process

This program will provide an introductory review on the federal procurement bid protest process, with a focus both on the procedural complexities of bid protest litigation, as well as a high-level review of the types of substantive legal issues that frequently arise in bid protests.

   Register for this latest CLE specialty program from the American Bar Association

 
 
 

Too busy to attend?

Pre-purchase the recorded program now.

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Audio CD-ROM
Ships 7/17/14
Available at ShopABA.org

June 26, 2014 in Government Contracting, Meetings | Permalink | TrackBack (0)

Wednesday, June 11, 2014

New in Print

Wednesday, June 4, 2014

New in Print

Friday, May 23, 2014

A Small Fish in a Big Game

By Myanna Dellinger

In California, the Bureau of Reclamation is in charge of divvying up water contracts in the California River Delta between the general public and senior local water rights owners.  Years ago, it signed off on long-term contracts that determined “the quantities of water and the allocation thereof” between the parties.  About a decade ago, it renewed these contracts without undertaking a consultation with the Fish and Wildlife Service (“FWS”) to find out whether the contract renewals negatively affected the delta smelt, a small, but threatened, fish species.  The thinking behind not doing so was that since the water contracts “substantially constrained” the Bureau’s discretion to negotiate new terms, no consultation was required.

Not correct, concluded an en banc Ninth Circuit Court of Appeals panel Ninth Circuit Court of Appeals panel recently.  By way of brief background, Section 7 of the Endangered Species Act (“ESA”) requires federal agencies to ensure that none of their actions jeopardizes threatened or endangered species or their habitat.  16 U.S.C. § 1536(a).  Among other things, federal agencies must consult with the FWS if they have “some discretion”"some discretion" to take action on behalf of a protected species.  In this case, since the contractual provision did not strip the Bureau of all discretion to benefit the species, consultation should have taken place.  For example, the Bureau could have renegotiated the pricing or timing terms and thus benefitted the species, said the court.

In 1993, the delta smelt had declined by 90% over the previous 20 years and was thus listed as a threatened species under the ESA.  Of course, fish is not the only species vying for increasingly scarce California water.  Man is another.  The current and ongoing drought in California – one of the worst in history – raises questions about future allocations of water.  Who should be prioritized?  Private water right holders?  People in Southern California continually thirsty and eager to water their often overly water-demanding garden plants?  Industry?  Farmers?  Not to mention the wild animals and plants depending on sufficient levels of water?  There are no easy answers here.

The California drought is estimated to cost Central Valley farmers $1.7 billion and 14,500 jobs.  While that seems drastic, the drought is still not expected to have any significant effect on the state economy as California is no longer an agricultural state.  In fact, agriculture only accounts for 5% of jobs in California.  Still, that is no consolation to people losing their jobs in California agriculture or consumers having to pay higher prices for produce in an increasingly warming and drying California climate. 

The 1974 movie Chinatown focused on the Los Angeles water supply system.  40 years later, the problem is just as bad, if not worse.  The game as to who gets water contracts and for how much water is still on.

May 23, 2014 in Commentary, Current Affairs, Food and Drink, Government Contracting, Recent Cases, True Contracts | Permalink | Comments (0) | TrackBack (0)

Friday, May 16, 2014

New in Print

Pile of BooksKevin E. Davis, moderator; Nicholas Bliss, Chantal Kordula, Kent Rowey, Ana Karina Esteves de Souza, & Carlos Umana, panelists, Public Private Partnerships in International Energy & Infrastructure Project Finance, 9 N.Y.U. J.L. & Bus. 729 (2013)

David G. Epstein, Timothy Archer & Shalayne Davis, Extrinsic Evidence, Parol Evidence, and the Parole Evidence Rule: A Call for Courts to Use the Reasoning of the Restatements Rather than the Rhetoric of Common Law, 44 N.M. L. Rev. 49 (2014)

Franco Ferrari, moderator; Matthieu de Boisseson, Inka Hanefeld, Mark Kantor, Ryan Reetz  & Laurence Shore, panelists, Multi-Party Arbitration Issues in International Project Finance Arbitration, 9 N.Y.U. J.L. & Bus. 759 (2013)

Daniel P. Graham, Nooree Lee & Katherine McDonald. Risk Allocation in State Health Care IT Contracting under the ACA, 43 Pub. Cont. L.J. 267 (2014)

Inka Hanefeld, Arbitration in Banking and Finance, 9 N.Y.U. J.L. & Bus. 917 (2013)

Stephen A. Plass, Using Pyett to Counter the Fall of Contract-Based Unionism in a Global Economy, 34 Berkeley J. Emp. & Lab. L. 219 (2013)

Val Ricks, Consideration and the Formation Defenses, 62 U. Kan. L. Rev. 315 (2013)

Arpan A. Sura & Robert A. DeRise, Conceptualizing Concepcion:The Continuing Viability of Arbitration Regulations, 62 U. Kan. L. Rev. 403 (2013)

Constance A. Wilkinson & Selena M. Brady, The Expansion of Federal Subcontractor Status to Health Care Providers, 43 Pub. Cont. L.J. 293 (2014)

 

May 16, 2014 in Government Contracting, Recent Scholarship | Permalink | TrackBack (0)

Wednesday, May 7, 2014

New in Print

Wednesday, April 16, 2014

New in Print

Pile of BooksKenneth A. Adams, Dysfunction in Contract Drafting: The Causes and the Cure (Reviewing Mitu Gulati & Robert E. Scott, The Three and a Half Minute Transaction: Boilerplate and the Limits of Contract Design (2013)), 15 Transactions: The Tenn. J. of Bus.L. 317 (2014)

Andrea J. Boyack, Sovereign Debt and The Three and A Half Minute Transaction: What Sticky Boilerplate Reveals about Contract Law and Practice (Reviewing Mitu Gulati and Robert E. Scott, The Three and A Half Minute Transaction: Boilerplate and the Limits of Contract Design), 35 Whittier L. Rev. 1 (2013)

Senator Elizabeth Warren, Stewart Macaulay: A Few Personal Reflections, 2013 Wisc. L. Rev. 1295

Richard R.W. Brooks, On the Empirical and the Lyrical: Review of Revisiting the Contracts Scholarship of Stewart Macaulay (Edited by Jean Braucher, John Kidwell & William C. Whitford) 2013 Wis. L. Rev. 1295-1354.

Emory LJ

THE 2013 RANDOLPH W. THROWER SYMPOSIUM
Privatization: Managing Liability and Reassessing Practices in Local and International Contexts 

ARTICLES 

Alex Kozinski & Andrew Bentz, Privatization and Its Discontents 

April 16, 2014 in Books, Government Contracting, Recent Scholarship | Permalink | TrackBack (0)

Wednesday, April 2, 2014

New in Print

Pile of BooksFranco Ferrari, PIL and CISG: Friends or Foes? 31 J.L. & Com. 45 (2012-2013)

James D. Rendleman, Brave New World of Hosted Payloads, 39 J. Space L. 129 (2013)

 Maj. Travis P. Sommer, Getting the Job Done: Meaningfully Investigating Organizational Conflicts of Interest, Army Law. 16 (2013)

Dmytro V. Vorobey, CISG and Arbitration Clauses: Issues of Intent and Validity, 31 J.L. & Com. 135 (2012-2013)

In addition, we have this special issue on Larry Cunningham's Contracts in the Real World in the Washington Law Review

The Perspective of Law on Contract

Aditi Bagchi
88 Wash. L. Rev. 1227

View Abstract    Full Article

Contract Texts, Contract Teaching, Contract Law: Comment on Lawrence Cunningham, Contracts in the Real World

Brian H. Bix
88 Wash. L. Rev. 1251

View Abstract    Full Article

Real WorldReflections on Contracts in the Real World: History, Currency, Context, and Other Values

Lawrence A. Cunningham
88 Wash. L. Rev. 1265

View Abstract    Full Article

Contract Stories: Importance of the Contextual Approach to Law

Larry A. DiMatteo
88 Wash. L. Rev. 1287

View Abstract    Full Article

Contract as Pattern Language

Erik F. Gerding
88 Wash. L. Rev. 1323

View Abstract    Full Article

Cases and Controversies: Some Things to Do With Contracts Cases

Charles L. Knapp
88 Wash. L. Rev. 1357

View Abstract    Full Article

Unilateral Reordering in the Reel World

Jake Linford
88 Wash. L. Rev. 1395

View Abstract    Full Article

Unpopular Contracts and Why They Matter: Burying Langdell and Enlivening Students

Jennifer S. Taub
88 Wash. L. Rev. 1427

View Abstract    Full Article

April 2, 2014 in Books, Government Contracting, Recent Scholarship | Permalink | TrackBack (0)

Saturday, February 22, 2014

KCON9: First Saturday Morning Session

I had the pleasure of chairing a panel populated by four young scholars all writing on Behavior, Bargaining, Incentives and Contract.

ChingKenneth Ching went first with his paper on Justice and Harsh Results: Beyond Individualism and Collectivism in Contracts.  His paper focused on Cardozo's celebrated opinion in Jacob & Youngs v. Kent in which Cardozo held that, although Jacob & Youngs had not installed Reading pipes as called for in the contract, it had nonetheless substantially performed the contract by installing pipes of similar quality.  Professor Ching maintains that Cardozo was wrong on both the facts and the law in the case.  The contract in the case made clear that complete performance was a condition of payment, and the law was clear (then and now) that there can be no substantial performance of a condition.  Moreover, even if it were possible to substantially perform conditions, Jacob & Youngs did not do so, as Cardozo would have noted had he actually applied the test to the facts of the case.

The case is but a gateway to Professor Ching's larger point about collectivist and individualist approaches to contracts law.  Judge Cardozo's opinion seems to take a collectivist (or parternalist) approach to the doctrinal problems that the case raises.  That is, Cardozo thinks we are all better off if people aren't held to unreasonable terms that would require the destruction of a home to replace pipes with virtually identical pipes.  Judge McLaughlin's dissent seems to be more individualist, focusing on Kent's perspective and his right to insist on the contracts rights for which he had bargained.  Professor Ching's approach rejects both collectivist and individualist approaches.  He favors a Thomist approach that  tries to resolve conflict in line with reason and with the goal of promoting human flourishing.  Cardozo's opinion might be attractive from a Thomist perspective. Responding to a question, Professor Ching acknowledged that James Gordely, whose approach informs Professor Ching's, would find for Jacob & Youngs based on unconscionability.  Still, Professor Ching maintains, Judge Cardozo reached the wrong result because of his mischaracterization of the facts and the law.

VersteaNext up was Andrew Verstein who gave a (his first ever) Prezi presentation (which was super cool) on Ex Tempore Contracting.  His paper takes on a tradition that distinguishes between ex ante and ex post approaches to contracts interpretation.  In the former, the parties specify how the contract is to be interpreted ("use Reading pipes"), and in the latter, the parties delegate  interpretation to an adjudicator ("use merchantable pipes").  In the ex ante approach, the parties determine the meaning of the terms; in the ex post approach, some neutral third party (court or arbitrator) determines the meaning.  Ideally, parties decide between precise (ex ante) terms and vague (ex post) terms based on the costs and benefits of choosing specific terms in particular contexts.  Parties should draft to minimize the sum of ex ante  and ex post costs.   

But Professor Verstein contends that there is middle ground between before performance and after (alleged) breach.  Some contracts disputes can be resolved during performance.  The parties can specify that a particular third party will resolve disputes that arise during performance (ex tempore), and they can be resolved whether the terms are superficially vague or superficially precise.  The aim remains to reduce the costs of dispute resolution, and there are many situations in which it is most efficient for the parties to agree to ex tempore dispute resolution, especially in construction agreements.  Professor Verstein illustrates this point with the case of the Chinese Ertan Dam, a huge construction project.  All disputes relating to that dam were resolved within six months of the dam's completion.  This fact is attributable to the existence of netural expert panels (dipute boards) that addressed disputes as they arose and were able to sort out most disputes before the parties became too aggrieved.  Reviewing Florida dispute boards, Professor Verstein finds that 98% of disputes are resolved without further conflict and the cost is 10-50% of arbitration.  This is not really dispute resolution, Professor Verstein contends; it is ex tempore contracting.  And, it turns out, this happens a lot more often than we realize.

Professor Verstein's paper is forthcoming in the William & Mary Law Review and can be downloaded here.

EpsteinWendy Netter Epstein next presented her paper on Public Private Contracting and the Reciprocity Norm.  Professor Epstein's thesis is that in some public private contracts it is very difficult for the government to reduce agency costs by writing more detailed contracts.  Picking up on Professor Verstein's theme, Professor Epstein contends that in certain circumstances it is better to have less detailed contracts with mechanisms for ongoing dispute resolution during contract performance.  This approach is most appropriate where there is a shallow market (i.e., very few private contractors bid), a narrow application (e.g., private prisons) or a disempowered group of third-party beneficiaries (e.g., welfare recipients).  

While a lot of scholarship has focused on the need for more detailed contracts in this context so as to provide for strong oversight of private actors working in the public interest.  Professor Epstein suggests that the result has been to increase the size and complexity of government contracts.  However, this solution does not work well because, where there is no well-functioning market, the government cannot effectively moitor and discipline private contractors.  Moreover, one point of outsourcing is to promote innovation and creativity, and excessive government monitoring of private contractors undermines that aim.  Professor Epstein drawns on research in the behavioral sciences and contends that reciprocity norm, which rewards people for kind actions, constrains actors more powerfully than models based on rational actors would predict.  She thus thinks that strict enforcement mechanisms and sanctions regimes often undermine cooperation in the public private contracting context.  Governments might be better served by communicating their positive intentions towards private contractors by entering into looser contracts that would permit the parties to chart the course of the collaboration on an on-going basis as the project proceeds.

Zacks-webFinally, Eric Zacks presented a paper on The Moral Hazard of Contract Drafting.  One party to a contract can act opportunistically as an economic agent of the other party.   The agency relationship arises when one party asks the other party to draft the agreement.  That is a delegation of authority that would then be ratified upon acceptance.  The danger of agency costs arises in that there may be a disparity between the contract as conceived and the contact as written. 

There may be economic value in having one party be the contract preparer.  For example, that party might have greater experience and expertise in contract preparation.  But the drafter may write the contract is such a way as to enable it to take advantage of the other party after performance has begun.  Then the question arises whether the principal (the non-drafting party) is able to monitor the agent (the drafting party).  For example, in consumer contracts, it seems unlikely that non-drafting consumers would be capable of both foreseeing and monitoring the agency costs involved in allowing sellers to draft consumer contracts.  One solution is for the principal to hire an agent (e.g., a lawyer) to monitor the contract.  Or there might be outside monitoring services to prevent opportunistic behavior, such as regulatory agencies or courts, or statutory requirements that certain transactions be written in plain language.  

Courts are less likely to intervene when they think the principal (non-drafting party) is sophisticated and has the means to protect itself against opportunistic behavior by the agent (drafting party).  In the contractual context, we have more limited ways to discourage opportunistic behavior through incentives for good behavior.  

Those not satisfied with this summary of Professor Zacks' argument can download the entire thing here.

February 22, 2014 in Conferences, Government Contracting, Recent Scholarship | Permalink | Comments (0) | TrackBack (0)

Wednesday, February 12, 2014

New in Print

Pile of BooksFabrizio Cafaggi, The Regulatory Functions of Transnational Commercial Contracts: New Architectures, 36 Fordham Int'l L.J. 1557 (2013) 

Jianlin Chen, Challenges in Designing Public Procurement Linkages: A Case Study of SMEs Preference in China's Government Procurement, 30 UCLA Pac. Basin L.J. 149 (2013)

Maksymilian Del Mar, Exemplarity and Narrativity in the Common Law Tradition, 25 Law & Lit. 390 (2013)

Daniel M. Isaacs, Hypothetical Efficiency Is not Grounds for Breach, 116 W. Va. L. Rev. 363 (2013)

Steven L. Schooner, Reflections on Comparative Public Procurement Law, 43 Pub. Cont. L.J. 1 (2013) 

Pedro Telles, The Good, the Bad, and the Ugly: The EU's Internal Market, Public Procurement Thresholds, and Cross-Border Interests, 43 Pub. Cont. L.J. 3 (2013)

Julian Velasco, Fiduciary Duties and Fiduciary Outs, 21 Geo. Mason L. Rev. 157 (2013)

February 12, 2014 in Government Contracting, Recent Scholarship | Permalink | TrackBack (0)

Tuesday, February 4, 2014

Detroit Claims that Its Financing Contracts Were Illegal

According to this article from The New York Times, Detroit filed suit on Friday, seeking to invalidate complex transactions that it used to finance its debts.  Detroit claims that the contracts at issue were illegal and are thus unenforceable.

Detroit at NightThe transactions brought in $1.4 billion for the city, but it now claims that they were an unlawful scheme to get around a ceiling on the amount of debt the city could take on and that it thus has no obligation to make payments on the "certificates of participation" issued in connection with the transactions.  Detroit is also seeking to cancel some related "interest-rate swaps" with two banks that obligate the city to pay tens of millions of dollars annually to the banks.  Just a few weeks ago, Detroit had offered to pay $165 million to get out of the contracts, but the bankruptcy judge rejected that as "too much money."  Paying nothing seems like a better deal for the city, if they can find a legal basis to get out of the obligation.  

February 4, 2014 in Government Contracting, In the News | Permalink | Comments (0) | TrackBack (0)

Wednesday, January 29, 2014

Ruling on Privity of Contract in Indiana

This is the second in a series of posts that draw on Michael Dorelli and Kimberly Cohen's recent article in the Indiana Law Review on developments in contracts law in Indiana.   This post will discuss State of Indiana Military Department v. Continental Electric Company, which was decided by the Indiana Court of Appeals in 2012.  

Gary Airport MapIn 2006, Continental Electric Company (Continental) submitted a bid as a subocontractor on the construction of an avaiation facility at the Gary/Chicago Internaional Airport (see the image at left).  Continental's submitted a bid of about $1.8 million to do the electrical work on the project, noting in its bid that $335,000 should be added to its bid under "Alternative 2," which was designated "Diesel Generator."  The State of Indiana Military (the State) which had issued the bid hosted a pre-bid meeting at which it sought to clarify that costs relating to Alternative 2 should be included in the base bid, but Continental did not do so, relying on its understanding of the written bid documents.  The State provided a written version of its clarification of Alernative 2, but Continental claims that the written version did not reflect what was said at the pre-bid meeting.

The Larson-Danielson Construction Company (Larson) was awarded the project and chose Continental to do its electrical work.  Continental began work in October 2006.  It dealt only with Larson and there was no contractual relationship between it and the State.  Continental billed Larson for an extra $207,000 worth of work associated with Alternative 2.

Continental complained throughout the process that it was entitled to payment for the work done under Alternative 2, but both Larson and the State believed that no extra payment was required, since both interpreted the bid documents as requiring that work associated with Alternative 2 be part of the base bid.  Getting no satisfaction from Larson, Continental brought suit against the State, claiming $207,000 in damages for breach of contract or quantum meruit.  The trial court found for Continental and the State appealed.

The Court of Appeals reversed.  It found that Continental could not bring a breach contract claim against the State because it was not in a contractual relationship with the State.  Nor had the State agreed to hear appeals arising out of controversies between Larson and its subcontrators.  

The Court then moved on to Continental's unjust enrichment claim.  Under Indiana law, four criteria must be met to establish such a claim: 

1)Whether the owner impliedly requested the subcontractor to do the work; 2) whether the owner reasonably expected to pay the subcontractor, or the subcontractor reasonably expected to be paid by the owner; 3) whether there was an actual wrong perpetrated by the owner; and 4) whether the owner’s conduct was so active and instrumental that the owner “stepped into the shoes” of the contractor.

The Court concluded that because Larson was paid in full, the trial court erred in finding that the State had retained a benefit for which it did not pay.  Basically, the Court agreed with Larson and the State the the bid documents and the clarification established that the costs associated with Alternative 2 were to be included in the base bid.  The Court concluded as follows:

In sum, we conclude that Continental Electric had no right to recover against Indiana Military. Continental Electric failed to establish that a measurable benefit was conferred on Indiana Military and that its retention of a benefit without payment would be unjust. Indeed, Indiana Military did not receive a measurable benefit from Continental Electric that it had not already paid for.

All concerned, including Continental Electric, knew long before Continental Electric ever entered into a subcontract with Larson that the wiring in question was part of the base contract with Larson and that Indiana Military would expect Larson to install the wiring between the facility building and the concrete generator pad. Larson 28completed the work, and was fully paid for that work. In short, Indiana Military has not unjustly retained a benefit without payment. 

The Court of Appeals set aside the trial court's ruling on quantum meruit and reversed its judgment.

January 29, 2014 in Government Contracting, Recent Cases | Permalink | Comments (0) | TrackBack (0)

Tuesday, January 7, 2014

More News on Government Technology Contracts

SuperWe have perviously posted examples of government contracting difficulties relating to technology contracts and websites.  Saturday's New York Times featured this op-ed by Georgetown Law Professor David A. Super (pictured), which chronicles technology contracting problems that have disproportionately affected the poor.  

Some recent technology contracts gone wrong that did not make the headlines:

  • 66,000 Georgia food stamp recipients and about half that many Medicaid recipients had their benefits terminated for failing to respond to renewal notices that, through a contractor's error, had never been sent;
  • A Massachusetts contractor deactivated food stamp cards because new ones had been sent without seeking any confirmation that the new ones had been received; and
  • A contractor's errors made food stamps unavailable to people in 17 states.

Super concludes:

Properly supervised contractors can use technology to improve the delivery of government services. But attention, oversight and willingness to act decisively to remedy fiascoes seem to depend on the wealth and clout of those who are affected. As Obamacare regains its footing, that lesson shouldn’t be forgotten.

[JT]

January 7, 2014 in Government Contracting, In the News | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 25, 2013

The Botched Obamacare Website Rollout and Government Contracts

It seemed unthinkable that the Obama administration could have so badly botched the rollout of the website associated with Obama's signature legislation, the Affordable Care Act (aka Obamacare).   However, as The New York Times reported here on Monday, and as we have already discussed here and here, the technological fumble may be a result of broader problems in the structures of government procurement systems which may finally get the attention they deserve because of the high-profile Obamacare rollout fiasco.  

SebeliusTo reduce the Times' report to its essence, the process of winning a government contract is very complex and daunting.  There are two problemmatic consequences of this structural element of government contracting.  First, it is hard for small companies or companies without expertise in the government procurement process to jump through all the hoops associated with that process.  Second, when the contracts are both long term and deal with technology, the government in some cases would be better served by working with smaller, more nimble contractors that can innovate and adapt as technology develops.  With technology improving at the rate at which it improves, the government cannot afford to get locked into multi-year contracts with entities that are not in a position to adapt as quickly as technology advances.  As the Times puts it:

Longstanding laws intended to prevent corruption and conflict of interest often saddle agencies with vendors selected by distant committees and contracts that stretch for years, even as technology changes rapidly. The rules frequently leave the government officials in charge of a project with little choice over their suppliers, little control over the project’s execution and almost no authority to terminate a contract that is failing.

“It may make sense if you are buying pencils or cleaning services,” said David Blumenthal, who during Mr. Obama’s first term led a federal office to promote the adoption of electronic health records. But it does not work “when you have these kinds of incredibly complex, data-driven, nationally important, performance-based procurements.”

A review of large-scale government contracts entered into over the past decade deemed only 4.6% successful, while 40% failed.  The rest were simply termed "challenged".  In what has become a familiar narrative (see, e.g., this Brennan Center report on the Obama administration's failed attempts to rein in overclassification), the Obama administration has taken steps to address the problem, but those steps are widely regarded as inadequate, in part because the administration is unable to overcome institutional resistance to change.  In this case, the standoff seems to be a result of resistance from the Office of Management and Budget to congressional legislation that would have exempted the Pentagon form the reform mandate. 
 
The solution for long-term projects involving technology seems to be to break up government contracts into small subcontracts and to partner with small companies that can focus on one task and make certain that the tecnology they employ is up-to-date throughout the life of the contract.
 
[JT]

December 25, 2013 in Government Contracting, In the News | Permalink | Comments (0) | TrackBack (0)

Wednesday, December 11, 2013

Congressional Study Finds that Violation of Federal Labor Laws Is No Bar to the Award of Federal Contracts

As reported here in The New York Times, a new congressional study found that the U.S. government continues to enter into contracts with firms that have been assessed heavy penalties for violating fundamental labor laws.  According to the report (unfortunately the Times provides no link and I could not find one through a quick Google search), 18 companies that received federal contracts were among the recipients of the 100 largest fines issued by the Occupational Safety and Health Administration.  Thirty-two federal contractors were among the leading companies in the amount of back pay owed to employees for wage violations.  

OSHA
There were about 50 companies that, among them, totalled nearly 1800 violations.  These companies were awarded $81 billion in contracts and paid nearly $200 million in fines and other assessments.  

The congressional committee that produced the report called for higher standards but did not go so far as to recommend that companies with major violations of labor law be considered ineligible for the award of government contracts.

[JT]

UPDATE:

Thanks to our anonymous tipster (see comments below), we have been able to find the full study.  Below is the Executive Summary:

Executive Summary

Each year, the United States pays out over $500 billion in taxpayer dollars to private companies for goods and services, much of which is used to pay the salaries of millions of workers. Taken together, companies that receive government contracts employ an estimated 22 percent of the American workforce, approximately 26 million workers.

Some of the nation’s largest federal contractors fail to pay their workers the wages they have earned or provide their employees with safe and healthy working conditions. The analysis found that almost 30 percent of the top violators of federal wage and safety laws are also current federal contractors.

Specifically:

  • Eighteen federal contractors were recipients of one of the largest 100 penalties issued by the Occupational Safety and Health Administration (OSHA) of the Department of Labor between 2007 and 2012. Almost half of the total initial penalty dollars assessed for OSHA violations were against companies holding federal contracts in 2012.
  • Forty-two American workers died during this period as a result of OSHA violations by companies holding federal contracts in 2012.
  •  Thirty-two federal contractors received back wage assessments among the largest 100 issued by the Wage and Hour Division of the Department of Labor between 2007 and 2012.
  • Thirty-five of these companies violated both wage and safety laws.
  • Overall, the 49 federal contractors responsible for large violations of federal labor laws were cited for 1,776 separate violations of these laws and paid $196 million in penalties and assessments. In fiscal year 2012, these same companies were awarded $81 billion in taxpayer dollars.

Federal law is intended to prevent taxpayer dollars from increasing the profits of companies with a record of violating federal law in two ways: by requiring contracting officers to assess a prospective contractor’s responsible compliance with federal law prior to awarding a contract, and by allowing agencies to suspend or debar contractors for certain behavior, including violations of federal law, in order to protect the integrity of taxpayer dollars.

In recent years, the federal government has increasingly used the contracting process to procure employee-based service work such as cleaning, security, and construction. However, a new analysis shows that taxpayer dollars are routinely being paid to companies that are putting the livelihoods and the lives of workers at risk. Many of the most flagrant violators of federal workplace safety and wage laws are also recipients of large federal contracts.

Almost half of the total initial penalty dollars assessed for OSHA violations were against companies holding current federal contracts.Unfortunately, this report demonstrates that the officials responsible for determining if a prospective contractor is a responsible entity prior to awarding a contract lack access to information on labor violations and lack the tools to evaluate the severity or repeated nature of these types of violations.

This is true even though the Clean Contracting Act of 2008 specifically required that a database be established to help agencies evaluate violations of federal law in making a responsibility determination. Some of the many incidents of misconduct that are not currently available to contracting officers in this database include:

  • The death of a 46-year-old father of four, who was working as a washroom operator at a Cintas Corporation facility in Tulsa, Oklahoma. He was killed after being swept into an industrial dryer when he attempted to dislodge a clothes jam. The dryer continued to spin with him inside for 20 minutes at over 300 degrees. Cintas received $3.4 million in federal contracts in fiscal year 2012.
  • The death of two employees of a Mississippi shipbuilding and ship repair company owned by ST Engineering Limited, who were killed when highly flammable materials being used to prepare a tugboat for painting ignited, leading to an explosion and fire. Findings of the investigation included failure to properly ventilate a confined space and lack of a rescue service available for a confined space. ST Engineering received $1.9 million in federal contracts in fiscal year 2012.
  • The deaths of seven workers at an Anacortes, Washington refinery owned by Texas based Tesoro Corporation, who were killed when a heat exchanger ruptured and spewed vapor and liquid that exploded. The workers who died were standing near the area of the rupture specifically to attempt to stop leaks of the volatile, flammable gases in the facility which had not been inspected for 12 years prior to the rupture. Tesoro received $463 million in federal contracts in fiscal year 2012.

The federal government is not required to contract with the private sector. Indeed, many of the functions that private contractors carry out for the government could be done equally well or better by government employees. But, when the government does solicit work from the private sector, it should use taxpayer dollars in a way that promotes compliance with federal law and improves the quality of life for working Americans.

Ensuring that the government contracts with actors who do not engage in serious or repeated violations of federal labor law is one important step to further that goal. Recommendations that will better protect taxpayer dollars and promote compliance with laws that protect the lives and livelihoods of American workers by those who receive taxpayer money include:

  • Improvements in the quality and transparency of Department of Labor information regarding violations of federal law.
  • Publication of an annual list of federal contractors that were assessed penalties or other sanctions, and as well as additional information concerning contractor compliance with labor law by the Department of Labor.
  • Improvement of contracting databases administered by the General Services Administration including increasing public transparency and expanding the amount of misconduct information included in those databases.
  • Issuance of an Executive Order requiring contracting officers to consult with, and obtain recommendations from, a designated official at the Department of Labor about violations of federal labor law when making responsibility determinations.
  • Issueance of an Executive Order to establish additional tools – beyond the existing responsibility determination and suspension and debarment process – that contracting officers, in consultation with the Department of Labor, can use to ensure that contractors comply with federal labor law.

 

 

December 11, 2013 in Government Contracting, In the News | Permalink | Comments (1) | TrackBack (0)

New in Print

Pile of BooksJennifer Camero, Zombieland: Seeking Refuge from the Statute of Frauds in Contracts for the Sale of Services or Goods, 82 UMKC L. Rev. 1 (2013)

James B. Helmer, Jr., False Claims Act: Incentivizing Integrity for 150 Years for Rogues, Privateers, Parasites and Patriots, 81 U. Cin. L. Rev. 1261 (2013)

Alan S. Kaplinsky & Mark J. Levin, Consumer Financial Services Azrbitration: What Does the Future Hold after Concepcion? 8 J. Bus. & Tech. L. 345 (2013) 

Nicole F. Munro & Peter L. Cockrell, Drafting Arbitration Agreements: A Practitioner's Guide for Consumer Credit Contracts, 8 J. Bus. & Tech. L. 363 (2013)

Alexander A. Reinert & Lumen N. Mulligan, Asking the First Question: Reframing Bivens after Minneci, 90 Wash. U. L. Rev. 1473 (2013)

[JT]

December 11, 2013 in Government Contracting, Recent Scholarship | Permalink | TrackBack (0)

Monday, December 2, 2013

California Controller Sues SAP for Failed Payroll System

CA State SealAccording to this report from the Courthouse News Service, California Controller John Chiang is suing SAP Public Services (SAP), a company with which the state of California had contracted for payroll services software (MyCalPAYS) that would assist California in managing payments to its 240,000 employees.  After three years of development and eight months of trials, California alleges that SAP still has not managed to get the system to work.

The system was projected to cost California taxpayers just over $100 million, but by the time it was cancelled, it had cost $260 million and never worked right, according to the state.  The state claims that MyCalPAYS was tried out on a test goup, and the results were disastrous: overpayments, underpayments, failures to report deposits in retirement accounts, childcare payments and medical contributions.  Although the state complained before declaring SAP to be in default, SAP contended that the system was working as designed.  

As Courthouse News Service reports, California encounered similar problems when it contracted with software developer Deloitte to manage its statewide judicial case management system.  

California, Kathleen Sebelius feels your pain.  

[JT]

December 2, 2013 in Government Contracting, In the News | Permalink | Comments (0) | TrackBack (0)

Wednesday, November 13, 2013

New in Print