We prepared, litigated, and ultimately settled a claim for equitable adjustment for a constructive change arising from agency direction that constituted economic waste.
Our client supplied precast concrete manholes to an Army Corps of Engineers (Corps) infrastructure project in Hawaii. The contract specified manholes conforming to ASTM C478, which requires steel reinforcement. However, some fiber-reinforced manholes meant for another customer were inadvertently shipped to the Corps project and installed. When the Corps directed the contractor to remove and replace the nonconforming manholes, we advised the contractor and the Corps that the government would need to pay an equitable adjustment to perform that work because the direction constituted economic waste. That doctrine does not permit the government to direct the replacement of work where the cost of correction is economically wasteful, and the work is otherwise adequate for its intended purpose unless it compensates the contractor to perform that work. To show that the doctrine of economic waste applied, we provided expert reports proving that the fiber-reinforced manholes were adequate for their intended purpose.
Although the Corps initially agreed that removing the manholes would constitute economic waste, it ordered the manholes to be replaced anyway. After the contractor spent almost $2 million to remove and replace the manholes, we filed a claim, arguing that the Corps constructively changed the contract by violating the economic waste doctrine. When the contracting officer denied the claim, we filed suit in the U.S. Court of Federal Claims.
Both parties moved for summary judgment. Although the court held that the disagreement between the parties’ expert witnesses over the structural adequacy of the manholes precluded summary judgment, we persuaded the court to reject the government’s contention that it was entitled to strict compliance with the specifications. Following the court’s ruling, the government agreed to settle for $1.8 million.
