United States Army Corps of Engineers v. John C. Grimberg Co., Inc., No. 2019-1608, 2020 BL 215269 (Fed. Cir. June 9, 2020)

The Court of Appeals for the Federal Circuit reversed a decision by the Armed Services Board of Contract Appeals (“Board”), which had found in favor of a contractor on a Type I differing site condition claim. The Board had held that, even though the contractor’s interpretation of the contract documents was unreasonable, it was more reasonable than the government’s. The Federal Circuit reversed, holding, as a matter of law, that the contractor’s unreasonable interpretation of the contract documents barred its claim.

The case arises from an Army Corps of Engineers project for the design and construction of the Navy Medical Biological Defense Research Laboratory (“Biolab”) in Fort Detrick, MD.  The request for proposals (“RFP”) issued by the Army Corps included a geotechnical report that stated that the Biolab should be supported by a deep foundation system of drilled piers socketed into five feet of competent rock (referred to as “rock sockets”). The geotechnical report also included data from 46 test borings, which indicated the subsurface conditions in the area.  However, of those 46 borings, just two were taken from the planned footprint of the Biolab project. Those two borings, referred to as DH-11 and DH-12, indicated high quality rock with no intervening voids or incompetent rock.  Other borings taken between 300 and 500 feet away from the Biolab’s footprint showed that up to 20 feet of incompetent rock could be expected.

John C. Grimberg Co., Inc. (“Grimberg”) submitted a bid and was ultimately selected for award.  In preparing its bid, Grimberg had relied solely upon borings DH-11 and DH-12 to estimate the volume of rock through which it would be required to drill.  Grimberg therefore assumed it would not encounter any voids or incompetent rock, estimating that each of its 48 planned rock sockets would require drilling into exactly five feet of rock, for a total of 240 feet.

The rock Grimberg actually encountered was far different than indicated by DH-11 and DH-12. Grimberg discovered voids and a significant amount of incompetent rock, which ultimately required Grimberg to drill through an additional 13.5 feet of rock per pier on average, for a total of 923 feet.

Grimberg sought an equitable adjustment from the Army Corps, arguing that the rock it had encountered constituted a Type 1 differing site condition because it differed materially from what was indicated in borings DH-11 and DH-12. The Army Corps denied Grimberg’s claim, asserting that Grimberg should have relied on the data from more distant bores.

On appeal, the Board held that Grimberg was entitled to an equitable adjustment because the rock Grimberg encountered was not reasonably foreseeable.  Initially, the Board determined that Grimberg’s interpretation of the contract documents was unreasonable because it had “‘cherry pick[ed]’ a subset of 2 of 46 borings” and relied upon those borings exclusively in preparing its estimate.  But the Board nonetheless found that Grimberg was entitled to relief on its claim because “[t]he quantities of rock encountered greatly exceeded the quantity reasonably foreseeable based on a fair reading of contractual indications.”  The Board explained that, while Grimberg’s reliance on DH-11 and DH-12 was unreasonable, it was more reasonable than the Army Corps’ argument that Grimberg should have relied upon borings taken 500 feet from the Biolab footprint.

On appeal, the Federal Circuit reversed. The Court explained that, to prevail on Type 1 differing site condition claim, a contractor must prove, among other things, that it had reasonably relied upon its interpretation of the contract documents. Because the Board determined that Grimberg’s reliance solely on DH-11 and DH-12 was unreasonable, the Board should have held, as a matter of law, that Grimberg’s claim failed.

Further, while the Board had reasoned that the Army Corps’ interpretation of the geotechnical report was less reasonable than Grimberg’s, the Federal Circuit concluded that the parties’ comparative reasonableness was immaterial because the “case law does not permit us to balance the Corps’ reasonableness against that of the contractor.”  Rather, “the focus of our inquiry must be on the reasonableness of the contractor.  This focus serves the purpose of incentivizing contractors to carefully and reasonably interpret contract documents.” The Court therefore reversed the Board and held that Grimberg was not entitled to an equitable adjustment.