Metcalf Construction Company v. United States

United States Court of Appeals

for the Federal Circuit

______________________

METCALF CONSTRUCTION COMPANY, INC.,

Plaintiff-Appellant,

v.

UNITED STATES,

Defendant-Appellee.

______________________

2013-5041

______________________

Appeal from the United States Court of Federal

Claims in No. 07-CV-0777, Judge Susan G. Braden.

______________________

Decided: February 11, 2014

______________________

ROBERT J. SYMON, Bradley Arant Boult Cummings

LLP, of Washington, DC, argued for plaintiff-appellant.

With him on the brief was ERIC A. FRECHTEL.

ELLEN M. LYNCH, Trial Attorney, Commercial Litiga-

tion Branch, Civil Division, United States Department of

Justice, of Washington, DC, argued for defendant-

appellee. With her on the brief were STUART F. DELERY,

Assistant Attorney General, JEANNE E. DAVIDSON, Direc-

tor, REGINALD T. BLADES, JR., Assistant Director, and

RUSSELL J. UPTON, Trial Attorney.

2 METCALF CONSTRUCTION COMPANY v. US

JERROLD J. GANZFRIED, Holland & Knight LLP, of

Washington, DC, for amicus curiae Associated General

Contractors of America. With him on the brief was

STEPHEN B. SHAPIRO. Of counsel on the brief was RALPH

C. NASH, of Washington, DC.

MAURICE BASKIN, Venable LLP, of Washington, DC,

for amicus curiae Associated Builders and Contractors,

Inc. With him on the brief was REBECCA PEARSON.

ROBYNNE T. PARKINSON, Thaxton Parkinson PLLC, of

Mercer Island, Washington, for amici curiae The Design-

Build Institute of America, et al. Of counsel on the brief

was MICHAEL LOULAKIS, Capital Project Law Group

PLLC, of Reston, Virginia.

______________________

Before O’MALLEY, PLAGER, and TARANTO, Circuit

Judges.

TARANTO, Circuit Judge.

We consider the scope of the duty of good faith and

fair dealing under a contract between the federal govern-

ment and a private company engaged to design and to

build housing for the military. We hold that the Court of

Federal Claims misread our precedent in articulating

what the contractor, Metcalf Construction Company,

needed to show in order to prove that the government

breached that duty. We also hold that the trial court

misinterpreted certain contractual provisions related to

Metcalf’s good-faith-and-fair-dealing claim. We therefore

vacate the trial court’s decision that Metcalf failed to

establish liability, vacate the accompanying damages

award, and remand for further proceedings using the

correct standard.

METCALF CONSTRUCTION COMPANY v. US 3

BACKGROUND

A

In 2002, the United States Navy awarded Metcalf a

contract to design and to build housing units at Marine

Corps Base Hawaii, which is located on Kaneohe Bay on

the northeastern side of the island of Oahu. Under the

original contract, Metcalf had to build 188 units by March

2005, and the government promised to pay Metcalf

$42,971,000. The parties modified the contract numerous

times. Eventually, the contract required Metcalf to build

212 units by October 17, 2006, for a price of just under

$50 million.

On December 31, 2002, the Navy told Metcalf to pro-

ceed with performance, but problems arose almost imme-

diately. One involved the soil at the site of construction.

“Expansive soil” swells when wet, which can lead to

cracks in concrete foundations and other damage. Be-

cause the character of the soil could significantly affect

the cost of construction, it was a topic of attention in the

process preceding the signing of the contract. Before the

Navy issued its initial request for proposals—the request

to which Metcalf responded, leading to the contract—a

government-commissioned report found that the soil at

the site had a “slight expansion potential.” In outlining

construction requirements, the request for proposals cited

that report as relevant to certain features of the project,

such as concrete foundations.

The government made clear that its pre-request soil

report was not to be the last word on soil conditions for

purposes of the project. A revised request for proposals

stated that the requirements in the “soil reconnaissance

report” were “for preliminary information only.” The

resulting contract required that the contractor conduct its

own independent soil investigation, and it incorporated

Federal Acquisition Regulation (FAR) 52.236-2, 48 C.F.R.

§ 52.236-2, which concerns site conditions that differ

4 METCALF CONSTRUCTION COMPANY v. US

materially from those disclosed in the contract. Even

before potential bidders had submitted proposals in

response to the request, the government had clarified, in a

publication written in question-and-answer form, that the

contract would be amended if the contractor’s post-award

independent investigation turned up soil conditions

significantly different from those described in the gov-

ernment’s report:

Q15: . . . This requires an independent investiga-

tion after award. . . . Should we infer from this

that any unforeseen soil conditions or variances

from the Government’s soils report will be dealt

with by change order?

Answer: Yes, if there’s a major disparity from the

Government’s soil reconnaissance report.

At the end of January 2003, after the contract took ef-

fect, Metcalf hired Geolabs, Inc., to investigate the soil.

Five months later, Geolabs reported that the soil’s swell-

ing potential was “moderate to high,” not “slight” (as the

pre-bid government study had said), and recommended a

course of action to account for the newly uncovered condi-

tion. Within days, Metcalf notified the Navy. Discussions

ensued, delaying construction for roughly a year. In those

discussions, Metcalf insisted on following Geolabs’s rec-

ommendations, while the Navy generally insisted on

following construction requirements set out in the original

contract. By mid-2004, Metcalf decided that the cost of

waiting for the Navy to approve the Geolabs-

recommended design changes had become too high, and it

began to implement those changes by over-excavating the

soil and replacing it with non-expansive fill, despite

awareness of the risk of proceeding without a contract

modification.

In August 2004, the Navy came to rest on how it

would treat Metcalf’s claim regarding the soil’s swelling

potential. The Navy denied that there was any material

METCALF CONSTRUCTION COMPANY v. US 5

difference between the pre-bid and post-award soil as-

sessments and thus concluded that no additional compen-

sation was warranted. But the Navy also approved

contract modifications that (1) paid Metcalf about $14,000

for additional soil tests and (2) authorized Metcalf to build

two prototype units in accordance with Geolabs’s recom-

mendations, at an increased cost of $56,640 over an

additional five days.

By that time, Metcalf was about 200 days “behind

schedule.” In an effort to get back on track, and in light of

the Navy’s decision, Metcalf decided to start addressing

the expansive-soil issue through the use of “post-tension”

concrete, which was more expensive than ordinary con-

crete but would avoid the additional time and cost of

continuing to over-excavate the soil and import non-

expansive fill. The trial court here noted that the Navy

amended the contract to approve the use of post-tension

concrete slabs (later concluding that Metcalf was not

entitled to recover increased costs associated with that

design change). All told, Metcalf claims that the expan-

sive-soil problems cost more than $4.8 million, mostly for

over-excavating the soil under certain units and using

post-tension concrete slabs.

Delays in construction also resulted from the presence

in the soil of more of a chemical contaminant—

chlordane—than had been expected. In the request for

proposals, the government had represented: “Chlordane is

present in the soils around the building foundation.

Remediation actions are not required since the levels are

acceptable.” The government made the same representa-

tion in its pre-proposal question-and-answer clarification:

Q34: Does the Navy have any requirements for

removal of the Chlordane contaminated soil,

shown on the environmental survey? For exam-

ple, if homes are built over the contaminated area

6 METCALF CONSTRUCTION COMPANY v. US

or will the Navy require removal of the Chlor-

dane?

Answer: No remediation action of the Chlordane

contaminated soil is required . . . .

In August 2003, after the contract took effect, the Navy

issued instructions to Metcalf about testing the soil for

chlordane and disposing of any contaminated soil.

By 2005, excavated soil was accumulating on the site,

and Metcalf needed a place to store it. (The request for

proposals had said that the contractor would have access

to a landfill, but the landfill had closed.) Before moving

the soil, Metcalf had to test it for chlordane. Metcalf

found higher levels than the pre-bid representation by the

government, and it notified the Navy. The parties dis-

cussed the matter, with each other and with State author-

ities. The Navy ultimately decided that, although the

amount of chlordane found was higher than detected

before the contract, the level that was acceptable was also

higher than previously stated. With the exception of one

“hot spot,” the Navy deemed the site to be safe. The Navy

afforded Metcalf a 286-day extension for completing the

building project and reimbursed Metcalf $1,493,103 for

costs associated with chlordane remediation, but Metcalf

sought an additional $500,000.

There were other disputes and interruptions along the

way to Metcalf’s ultimate completion of the project.

Metcalf alleges, for example, that the Navy imposed

requirements not found in the written contract and that

an uncooperative inspector hindered the project. The

Navy accepted the last three buildings on March 2, 2007,

a few months after the October 17, 2006 deadline (which

was the result of certain extensions). Metcalf alleges that

its final cost of construction was roughly $76 million. The

government paid Metcalf less than $50 million.

METCALF CONSTRUCTION COMPANY v. US 7

B

On March 30, 2007, Metcalf filed a claim for damages

with the Navy’s contracting officer. What is relevant here

is that Metcalf argued that the Navy had materially

breached the contract and—what is before us—the im-

plied duty of good faith and fair dealing under the con-

tract. The contracting officer denied the claim.

Metcalf brought suit in the Court of Federal Claims

under the Contract Disputes Act, 41 U.S.C. § 609 (2006)

(later recodified at 41 U.S.C. § 7104, see Public Contracts

Act of Jan. 4, 2011, Pub. L. No. 111-350, 124 Stat. 3677).

The government counterclaimed under a liquidated-

damages provision of the contract, seeking a specified

amount for each day past October 17, 2006, that Metcalf

had not completed the job. In early 2010, the case went to

trial in two phases.

The court issued a decision on liability in December

2011. Metcalf Const. Co. v. United States, 102 Fed. Cl.

334 (2011). After analyzing each of Metcalf’s particular

complaints, the court concluded that Metcalf had “failed

to establish liability under all claims alleged,” id. at 370,

with two exceptions. First, the court held that the Navy

had violated FAR 52.236-2(b) by failing to investigate the

expansiveness of the soil in a timely manner. Id. at 354,

370-71. Second, the court held that the Navy had not

issued a proper notice to proceed at the beginning of the

project until months later than contractually required.

Id. at 369-70. The court ultimately determined that this

delay was a breach that rendered Metcalf unable to work

for that period, to its detriment. Id.; Metcalf Constr. Co.

v. United States, 107 Fed. Cl. 786, 788 & n.2 (2012).

In its 2012 opinion on damages and the government’s

liquidated-damages counterclaim, the court decided that

liquidated damages against Metcalf were proper because

the parties had agreed to a completion date (October 17,

2006) and Metcalf missed it. The court rejected Metcalf’s

8 METCALF CONSTRUCTION COMPANY v. US

argument that the two delay-causing breaches by the

government nullified any liquidated damages based on

late delivery. Id. at 789. As for the two government

breaches, the court held first that Metcalf was not entitled

to damages for the expansive-soil-related breach because

only “post-January 2006 delays, primarily occasioned by

the chlordane remediation, were responsible for Metcalf

not completing the project on time”; the court had rejected

liability for chlordane problems; and (an apparent implicit

premise) the only damages sought were tied to delay of

completion past the due date. Id. at 794-95. The court

found, however, that Metcalf was entitled to $272,191.59

in damages on the notice-to-proceed breach ($2,700 per

day in “general condition costs” for 99 days, plus a “1.83%

general overhead rate”). Id. at 795 & n.15. On December

28, 2012, the court entered final judgment for the gov-

ernment in the amount of $2,401,315.41 ($2,637,507 in

liquidated damages minus $272,191.59), plus interest.

Metcalf appeals. We have jurisdiction under 28

U.S.C. § 1295(a)(3).

DISCUSSION

Two claims are at issue: Metcalf’s claim for breach of

the implied duty of good faith and fair dealing, and the

government’s counterclaim for liquidated damages. See

Oral Arg. at 15:20-20:45 (“Q [to Metcalf’s counsel]: You

have only one count of the complaint surviving, and that’s

based on the duty of good faith and fair dealing? A:

That’s correct.”). Metcalf takes issue with the trial court’s

decisions on both. With respect to its own claim, Metcalf

contends that the court (A) applied the wrong legal stand-

ard and (B) misinterpreted certain contract provisions

underlying the claim. We agree, and we therefore vacate

the judgment on Metcalf’s claim and remand. Because

the reconsideration of liability for government breach may

affect any entitlement the government has to liquidated

METCALF CONSTRUCTION COMPANY v. US 9

damages, we vacate the judgment on the government’s

counterclaim and remand on that matter as well.

A

1

“Every contract imposes upon each party a duty of

good faith and fair dealing in its performance and en-

forcement.” Restatement (Second) of Contracts § 205

(1981) (“Restatement”), quoted in Alabama v. North

Carolina, 120 S. Ct. 2295, 2312 (2010). Failure to fulfill

that duty constitutes a breach of contract, as does failure

to fulfill a duty “imposed by a promise stated in the

agreement.” Restatement § 235. We have long applied

those principles to contracts with the federal government.

E.g., Precision Pine & Timber, Inc. v. United States, 596

F.3d 817, 828 (Fed. Cir. 2010); Malone v. United States,

849 F.2d 1441, 1445-46 (Fed. Cir. 1988).

Identifying some acts as breaches of the duty, like

“[s]ubterfuges and evasions,” id. at 1445, may require

little reference to the particular contract. In general,

though, “what that duty entails depends in part on what

that contract promises (or disclaims).” Precision Pine, 596

F.3d at 830. That is evident from repeated formulations

that capture the duty’s focus on “faithfulness to an agreed

common purpose and consistency with the justified expec-

tations of the other party” (Restatement § 205 cmt. a),

which obviously depend on the contract’s allocation of

benefits and risks. “The covenant of good faith and fair

dealing . . . imposes obligations on both contracting par-

ties that include the duty not to interfere with the other

party’s performance and not to act so as to destroy the

reasonable expectations of the other party regarding the

fruits of the contract.” Centex Corp. v. United States, 395

F.3d 1283, 1304 (Fed. Cir. 2005) (emphases added). “Both

the duty not to hinder and the duty to cooperate are

aspects of the implied duty of good faith and fair dealing.”

Precision Pine, 596 F.3d at 820 n.1. What is promised or

10 METCALF CONSTRUCTION COMPANY v. US

disclaimed in a contract helps define what constitutes

“lack of diligence and interference with or failure to

cooperate in the other party’s performance.” Malone, 849

F.2d at 1445. In short, while the implied duty exists

because it is rarely possible to anticipate in contract

language every possible action or omission by a party that

undermines the bargain, the nature of that bargain is

central to keeping the duty focused on “honoring the

reasonable expectations created by the autonomous

expressions of the contracting parties.” Tymshare, Inc. v.

Covell, 727 F.2d 1145, 1152 (D.C. Cir. 1984) (per Scalia,

J.).

We have expressed this principle when we have said

that the “implied duty of good faith and fair dealing

cannot expand a party’s contractual duties beyond those

in the express contract or create duties inconsistent with

the contract’s provisions.” E.g., Precision Pine, 596 F.3d

at 831. Although in one sense any “implied” duty “ex-

pands” the “express” duties, our formulation means

simply that an act will not be found to violate the duty

(which is implicit in the contract) if such a finding would

be at odds with the terms of the original bargain, whether

by altering the contract’s discernible allocation of risks

and benefits or by conflicting with a contract provision.

The implied duty of good faith and fair dealing is limited

by the original bargain: it prevents a party’s acts or

omissions that, though not proscribed by the contract

expressly, are inconsistent with the contract’s purpose

and deprive the other party of the contemplated value.

See First Nationwide Bank v. United States, 431 F.3d

1342, 1350 (Fed. Cir. 2005) (duty was breached by legisla-

tion that “changed the balance of contract consideration”).

We applied these principles in Precision Pine, which

involved logging contracts that expressly allowed the

government to suspend the private contractor’s timber-

harvesting operations in order to “‘comply with a court

order.’” 596 F.3d at 828. Faced with an injunction pro-

METCALF CONSTRUCTION COMPANY v. US 11

hibiting logging, the government suspended the contracts,

as the contracts allowed, and we declined to find a breach

of the duty of good faith and fair dealing in alleged unrea-

sonable delay in the government’s carrying out of actions

ordered by the court before harvesting might resume. Id.

at 828-31. We held that there was no breach because of

two grounds combined: the challenged delays “were

(1) not ‘specifically targeted[’ at the contracts,] and (2) did

not reappropriate any ‘benefit’ guaranteed by the con-

tracts, since the contracts contained no guarantee that . . .

performance would proceed uninterrupted.” Id. at 829.

On the central point about the underlying contract

bargain, Precision Pine emphasized that “the contracts

expressly qualified” the benefit of timber harvesting that

Precision Pines alleged the government’s actions had

impaired. Id. More specifically, as we later explained,

the particular “court order” clause of the contract at issue

in Precision Pine, in expressly authorizing suspension of

harvesting to comply with a court order, made clear that

the contract bargain did not include limits on the timing

of the government’s compliance with an obligation im-

posed by the court. Scott Timber Co. v. United States, 692

F.3d 1365, 1375 (Fed. Cir. 2012) (“Significantly, here, as

in Precision Pine, the obligation to comply with the in-

junction is not owed to the timber company but to the

court that issued the injunction and the party that sought

the injunction. There is no basis for redefining the con-

cept of good faith and fair dealing to include a require-

ment of diligence in complying with obligations imposed

by another tribunal in a separate case.”). As a result, an

essential basis of Precision Pine was that the challenged

conduct was not contrary to the contract bargain. Preci-

sion Pine, 596 F.3d at 830 (stressing that the challenged

12 METCALF CONSTRUCTION COMPANY v. US

delay involved obligations under the injunction, not under

the contract). 1

Our recent decision in Bell/Heery v. United States,

No. 2013-5002, –F.3d–, 2014 WL 43892 (Fed. Cir. Jan. 7,

2014), likewise reflects the need to take account of the

particular contract at issue in considering a claim of

breach of the good-faith-and-fair-dealing duty implicit in

that contract. Bell/Heery’s complaint “focuse[d] on the

frustrating conduct of . . . an independent state agency,”

alleging in particular that the state agency had unrea-

sonably administered state permits after Bell/Heery had

based its bid for a federal-government project on a belief

that the agency would act more favorably. Id. at *10. We

concluded that the contract itself allocated to Bell/Heery

the risks attending the securing of the required state

permits, and we saw no basis for finding that the federal

government had affirmatively interfered with Bell/Heery’s

dealings with the state agency or “reappropriated benefits

promised to [Bell/Heery] under the contract.” Id. at *9-10.

On those bases, we rejected a good-faith-and-fair-dealing

claim that sought to shift the responsibility for a state

agency’s alleged unreasonableness onto the federal gov-

ernment.

1 In Scott Timber, the court underscored the cen-

trality of understanding the allocation of benefits and

risks by the specific contract provisions at issue when it

contrasted the specific “court order” contract provision at

issue there and in Precision Pine with the distinct con-

tract provision under which the government had acted in

an earlier case involving the Scott Timber Company. See

Scott Timber, 692 F.3d at 1375 & n.4, describing Scott

Timber Co. v. United States, 333 F.3d 1358 (Fed. Cir.

2003).

METCALF CONSTRUCTION COMPANY v. US 13

2

The trial court’s decision in this case rests on an un-

duly narrow view of the duty of good faith and fair deal-

ing. Relying almost entirely on Precision Pine, it held

that “a breach of the duty of good faith and fair dealing

claim against the Government can only be established by

a showing that it ‘specifically designed to reappropriate

the benefits [that] the other party expected to obtain from

the transaction, thereby abrogating the government’s

obligations under the contract.’” Metcalf, 102 Fed. Cl. at

346 (emphasis added; bracketed word added by trial

court). Underscoring its narrow view, the court added

that “incompetence and/or the failure to cooperate or

accommodate a contractor’s request do not trigger the

duty of good faith and fair dealing, unless the Govern-

ment ‘specifically targeted’ action to obtain the ‘benefit of

the contract’ or where Government actions were ‘under-

taken for the purpose of delaying or hampering perfor-

mance of the contract.’” Id. (alterations omitted). The

court invoked those principles when deciding Metcalf’s

specific claims for breach. E.g., id. at 363-64.

The trial court misread Precision Pine, which does not

impose a specific-targeting requirement applicable across

the board or in this case. The cited portion of Precision

Pine does not purport to define the scope of good-faith-

and-fair-dealing claims for all cases, let alone alter earlier

standards. The passage cited by the trial court, after

saying as a descriptive matter that cases of breach “typi-

cally involve some variation on the old bait-and-switch,”

Precision Pine, 596 F.3d at 829, says that the government

“may be liable”—not that it is liable only—when a subse-

quent government action is “specifically designed to

reappropriate the benefits the other party expected to

obtain from the transaction.” Id. (emphasis added).

Precision Pine then states its holding as rejecting breach

for two reasons combined: the challenged government

actions “were (1) not ‘specifically targeted[’ at the con-

14 METCALF CONSTRUCTION COMPANY v. US

tracts,] and (2) did not reappropriate any ‘benefit’ guaran-

teed by the contracts.” Id.

As that statement indicates, the court in Precision

Pine did not hold that the absence of specific targeting, by

itself, would defeat a claim of breach of the implied duty—

i.e., that proof of specific targeting was a requirement for

a showing of breach. When the court said that specific

targeting would have been required for breach of the duty

in that case, id. at 830, it did so in a context in which the

more general bargain-impairment grounds for breach of

the duty were unavailable, because the suspension-by-

court-order provision expressly authorized the suspen-

sion, without limitation on the time of compliance with

the order. That is enough to make clear that specific

targeting is not a general requirement. In addition, the

challenged government conduct in Precision Pine occurred

in implementing a separate government authority and

duty independent of the contract, namely, enforcement of

and compliance with the injunction. In that context—as

in the legislative context from which Precision Pine bor-

rowed its reference to specific targeting, 596 F.3d at 830

(citing Centex and First Nationwide Bank)—the “specifi-

cally targeted” language protects against use of the im-

plied contract duty to trench on the authority of other

government entities or on responsibilities imposed on the

contracting agency independent of contracts. The present

case involves no such concern.

The government attempts to defend the trial court’s

standard by arguing that Precision Pine did not change

the good-faith-and-fair-dealing standard. But that asser-

tion sidesteps the question of what standards Precision

Pine and other precedents establish. The answer to that

question is that, as already explained, neither Precision

Pine nor other authority supports the trial court’s holding

that specific targeting is required generally or in the

present context, which does not involve the kind of dual-

authority circumstances that gave rise to the “specifically

METCALF CONSTRUCTION COMPANY v. US 15

targeted” formulation as part of the inquiry in Precision

Pine. The general standards for the duty apply here. The

trial court erred in relying on Precision Pine for a differ-

ent, narrow standard.

In seeking nevertheless to defend the trial court’s

judgment, the government relies on a legal standard it

draws from another statement in Precision Pine—that the

duty “cannot expand a party’s contractual duties beyond

those in the express contract or create duties inconsistent

with the contract’s provisions.” Id. at 831. That state-

ment does not even on its face support the specific-

targeting standard applied by the trial court. It is also

not a statement the trial court recited and relied on.

Critically, moreover, as a substantive matter, the quoted

language does not mean what the government seems to

urge.

As we have already explained, all that the quoted lan-

guage means is that the implied duty of good faith and

fair dealing depends on the parties’ bargain in the partic-

ular contract at issue. See section A.1, supra. The gov-

ernment suggests a much more constraining view when it

argues, for example, that there was no breach of the

implied duty because “Metcalf cannot identify a contract

provision that the Navy’s inspection process violated.”

Gov’t Br. 16. That goes too far: a breach of the implied

duty of good faith and fair dealing does not require a

violation of an express provision in the contract.

The government cites a few decisions to bolster its ap-

parent position, but none of them holds that the implied

duty requires a breach of an express contractual duty.

For example, Bradley v. Chiron Corp., 136 F.3d 1317

(Fed. Cir. 1998), in addressing a claim of constructive

fraud under California law, mentions the duty of good

faith and fair dealing only in a parenthetical explaining

an intermediate appellate court decision from California,

id. at 1326, and the cited decision itself makes clear that

16 METCALF CONSTRUCTION COMPANY v. US

“the covenant is implied as a supplement to the express

contractual covenants, to prevent a contracting party from

engaging in conduct which (while not technically trans-

gressing the express covenants) frustrates the other

party’s rights to the benefits of the contract.” Racine &

Laramie, Ltd. v. California Dep’t of Parks and Recreation,

11 Cal. App. 4th 1026, 1031-32, 14 Cal. Rptr. 2d 335, 339

(1992) (internal quotation marks omitted). In Centex,

moreover, we declined to read Bradley’s parenthetical

expansively, concluding that “it would be inconsistent

with the recognition of an implied covenant if we were to

hold that the implied covenant of good faith and fair

dealing could not be enforced in the absence of an express

promise to pay damages in the event of conduct that

would be contrary to the duty of good faith and fair deal-

ing.” 395 F.3d at 1306. And the government’s other

featured case, United States v. Basin Elec. Power Co-op.,

248 F.3d 781 (8th Cir. 2001), similarly recognizes that the

implied duty in fact is not limited to “the enforcement of

terms actually negotiated.” Id. at 796 (internal quotation

marks omitted).

For these reasons, the trial court’s standard for judg-

ing the claim of breach of the implied duty of good faith

and fair dealing was improperly narrow. So too is the

standard the government now seems to advance as its

principal defense of the trial court’s decision. Whether

the government breached the duty of good faith and fair

dealing—as to the expanded-soil problem, the chlordane

problem, or any other properly preserved matter—

requires reconsideration under the familiar broader

standards reflected in the passages from Centex and

Malone quoted above. Accordingly, we must vacate the

judgment on Metcalf’s claim and remand.

B

Two matters warrant further elaboration. Under the

correct standard, although Metcalf is pursuing only a

METCALF CONSTRUCTION COMPANY v. US 17

good-faith-and-fair-dealing claim, any breach of that duty

has to be connected, though it is not limited, to the bar-

gain struck in the contract. See section A.1, supra.

Proper application of the implied-duty standard thus

depends on a correct understanding of the contract.

Metcalf contends that the trial court misinterpreted

several contract provisions related to its claim. We agree.

The first set of provisions pertains to site conditions—

in particular, expansive soils and chlordane. The contract

incorporates FAR 52.236-2, which is entitled “Differing

Site Conditions” and provides:

(a) The Contractor shall promptly, and before the

conditions are disturbed, give a written notice to

the Contracting Officer of (1) subsurface or latent

physical conditions at the site which differ mate-

rially from those indicated in this contract, or (2)

unknown physical conditions at the site, of an un-

usual nature, which differ materially from those

ordinarily encountered and generally recognized

as inhering in work of the character provided for

in the contract.

(b) The Contracting Officer shall investigate the

site conditions promptly after receiving the notice.

If the conditions do materially so differ and cause

an increase or decrease in the Contractor’s cost of,

or the time required for, performing any part of

the work under this contract, whether or not

changed as a result of the conditions, an equitable

adjustment shall be made under this clause and

the contract modified in writing accordingly.

48 C.F.R. § 52.236-2. The RFP and pre-bid documents set

out an understanding of how that provision would be

applied to soil conditions. For both swelling potential and

chlordane, the RFP incorporated representations about

the site: it invoked a report on expansive soils for “site

preparation, foundation support, footing, slab and rein-

18 METCALF CONSTRUCTION COMPANY v. US

forcement requirements,” and it said that “[r]emediation

actions are not required since [chlordane] levels are

acceptable.” On both issues, the contract also anticipated

that Metcalf would test and investigate the soil in the

process of performance. But a pre-bid question-and-

answer stated in plain terms that material deviations

from the government’s report on swelling potential would

be “dealt with by change order” and that “[n]o remedia-

tion action of the Chlordane contaminated soil is re-

quired.”

The trial court interpreted the pre-bid site represen-

tations and related RFP provisions to be nullified by

Metcalf’s investigative responsibilities during perfor-

mance. With respect to expansive soils, the court held

that a reasonable contractor reading the contract docu-

ments as a whole would not interpret them as making a

representation as to the site conditions because “the

Contract required Metcalf to conduct an independent soil

analysis [and so] Metcalf was on notice that it could not

rely on the ‘information only’ report.” Metcalf, 102 Fed.

Cl. at 354. Metcalf was entitled to rely on the report “for

bidding purposes,” the court said, but not “in performing

the . . . project.” Id. Analogously, with respect to chlor-

dane, the court held that the fact that Metcalf would itself

need to assess the soil meant that Metcalf could not rely

on the representations that remediation was not required;

the company “was on notice to seek more information.”

Id. at 358-59. The court thus treated the contract as

placing on Metcalf the risk and costs of dealing with

newly discovered conditions different from those stated by

the government before the contract became binding.

These rulings about an important allocation of risk

were based on a misinterpretation of the contract. Noth-

ing in the contract’s general requirements that Metcalf

check the site as part of designing and building the hous-

ing units, after the contract was entered into, expressly or

implicitly warned Metcalf that it could not rely on, and

METCALF CONSTRUCTION COMPANY v. US 19

that instead it bore the risk of error in, the government’s

affirmative representations about the soil conditions. To

the contrary, the government made those representations

in the RFP and in pre-bid questions-and-answers for

bidders’ use in estimating costs and therefore in submit-

ting bids that, if accepted, would create a binding con-

tract. The natural meaning of the representations was

that, while Metcalf would investigate conditions once the

work began, it did not bear the risk of significant errors in

the pre-contract assertions by the government about the

subsurface site conditions.

FAR 52.236-2, incorporated into the contract, rein-

forces that meaning. It exists precisely in order to “take

at least some of the gamble on subsurface conditions out

of bidding”: instead of requiring high prices that must

insure against the risks inherent in unavoidably limited

pre-bid knowledge, the provision allows the parties to deal

with actual subsurface conditions once, when work be-

gins, “more accurate” information about them can reason-

ably be uncovered. Foster Const. C. A. & Williams Bros.

Co. v. United States, 435 F.2d 873, 887 (Ct. Cl. 1970); see

also H.B. Mac, Inc. v. United States, 153 F.3d 1338, 1343

(Fed. Cir. 1998). For that reason, even requirements for

pre-bid inspection by the contractor have been interpreted

cautiously regarding conditions that are hard to identify

accurately before work begins, so that “the duty to make

an inspection of the site does not negate the changed

conditions clause by putting the contractor at peril to

discover hidden subsurface conditions or those beyond the

limits of an inspection appropriate to the time available.”

Foster, 435 F.2d at 888; see also, e.g., Hollerbach v. United

States, 233 U.S. 165, 170-71 (1914).

The conclusion is not changed by the statement in a

revised RFP that the expansive-soil report was “for pre-

liminary information only.” J.A. 20141. That statement

merely signals that the information might change (it is

“preliminary”). It does not say that Metcalf bears the risk

20 METCALF CONSTRUCTION COMPANY v. US

if the “preliminary” information turns out to be inaccu-

rate. We do not think that the language can fairly be

taken to shift that risk to Metcalf, especially when read

together with the other government pronouncements,

much less when read against the longstanding back-

ground presumption against finding broad disclaimers “of

liability for changed conditions.” United Contractors v.

United States, 368 F.2d 585, 598 (Ct. Cl. 1966).

Apart from the soil-condition issues, Metcalf also chal-

lenges the trial court’s holding that the contract required

written approval for all design changes, including those

changes that would leave the resulting design still within

the performance requirements of the RFP. Metcalf, 102

Fed. Cl. at 359-60. We see no basis for such an interpre-

tation in the two provisions cited by the trial court and

the government. The first states:

1D.6 PRECEDENCE: In the event of conflict or

inconsistency between any of the provisions of the

various portions of this contract, for which the

reconciliation of which is not otherwise provided

in the RFP, precedence shall be given in the fol-

lowing order with the provisions of any particular

portion prevailing over those of a subsequently

listed portion:

(a) Typewritten portions of the contract.

(b) The provisions of the “Request of Proposals” is-

sued in connection with this contract (includ-

ing all addenda, amendments, or other

modifications issued thereunder).

(c) Printed provisions of the contract form includ-

ing printed provisions of added slip sheets.

(d) The contents of the contractor’s proposal, in-

cluding but not limited to his forwarding letter,

drawings, outline specifications, accepted al-

ternates or additives, and materials, tests or

METCALF CONSTRUCTION COMPANY v. US 21

other data (including all supplements,

amendments and modifications thereto).

(e) The Government reviewed contractor prepared

final plans and specifications, except to the ex-

tent that any variation therein has been specif-

ically approved in writing by the Government.

J.A. 20039. That provision simply defines a hierarchy for

determining what terms prevail over other terms when

there is an inconsistency, placing certain government-

reviewed specifications lowest in the hierarchy, with an

exception for approved variations. Whatever the provi-

sion precisely means, it does not say that Metcalf needed

written approval for all design changes.

The second provision relied on by the government

states:

4. VARIATIONS: Variations from contract re-

quirements require Government approval pursu-

ant to Contract Clause entitled “Specifications

and Drawings for Construction” and will be con-

sidered where advantageous to the Government.

J.A. 20231. That provision requires government approval

only for variations from “contract requirements.” As to

what “contract requirements” means, Metcalf points to

early communications between the parties suggesting

that the phrase did not sweep in all elements of a design,

and specifically did not include elements not required by

the government-provided specification in the RFP that

became part of the contract. See Metcalf Br. 45-47; Dy-

namics Corp. of Am. v. United States, 389 F.2d 424, 430

(Ct. Cl. 1968) (“[T]he action of the parties ‘before a contro-

versy arises is highly relevant in determining what the

parties intended.’”). This issue warrants further explora-

tion on remand. At present, we decline to interpret the

reference to “contract requirements” to necessitate writ-

ten approval for all design changes, regardless of their

22 METCALF CONSTRUCTION COMPANY v. US

size or whether the resulting design remains within the

scope of the RFP.

C

Having decided to vacate the trial court’s judgment on

liability and remand for further proceedings, we do the

same for the damages award. The amount of damages

could change after reevaluation of Metcalf’s claim, both

for the good-faith-and-fair-dealing claim and for the

government’s liquidated-damages counterclaim. The

affirmative claim and the counterclaim, both involving

the effect of government-caused delays on the completion

date, appear to be intertwined. Accordingly, damages

should be revisited alongside liability on remand.

CONCLUSION

We vacate the claim court’s decision and remand for

further proceedings.

Costs to Metcalf.

VACATED AND REMANDED